Is Having a Bank Account Worth the Risk?

Is your checking account necessary? For those with balances consistently less than $1,000, the answer may be no.

Financial institutions, increasingly facing pressure from shareholders and regulators to turn profits despite an extraordinarily rough economic climate, have been forced to be more aggressive in accruing service fees, withdrawal fees, and so forth. These fees tend to unduly affect customers with less money saved. Banks don't want to risk losing their "best" customers (those with balances large enough to accrue significant interest), so instead they focus on new offerings for at-risk and low-end customers (such as college students, first-time account holders, etc.)

There are alternatives to a checking account, such as storing money over time in a safe or safety deposit box or hidden location within your home. The risks involved with doing so may be obvious to many: 1) possible theft or loss 2) no interest is earned and 3) lack of accountability for tax reasons.

The benefits are, mainly, that you will no longer be exposed to unexpected fees or stressful overdraft events.

If you do decide to close your account and establish a cash-only financial system, limit your risk. Don't place all of your cash assets in a single location. Keep some in your wallet or purse, some in a safe, and some in a third-party secured location such as a safety deposit box or storage center. Don't tell others where your money is kept, and keep careful records so you know how much you are spending per week. In an age of digital bank statements, many of us have forgotten how to balance our budgets effectively.

Carrying cash also limits your exposure to high-interest credit cards. For those with routinely large balances, however, a checking account makes the most sense: you will earn interest (however minimal it may be) and you will be relatively protected from losses. Look for a bank or financial institution with FDIC insurance included just to be safe.