5 things banks do for you that’s really important

Mother depositing check on smartphone

[This is Part II of a two-part series on how banks affect our everyday lives. Part I was Money matters: How money works.]

“The bank” has been a standard villain in the movies since the earliest days. In fact, it wouldn't be the holidays without Jimmy Stewart reminding us how wonderful life could be without Mr. Potter, the banker villain.

But where would we be without banks? Yesterday's article looked at how our financial system has evolved to where money is no longer what jingles and crackles in our pockets, but has become only a set of numbers in some bank's accounting system.

And we depend on this evolved system of money a whole lot more than we often acknowledge over dinner.

1. Safety

In the olden days, you either carried your money on your person or left it at home under the mattress. And that made you a target. We might still be that vulnerable today except for the fact that we don't carry near that much cash anymore … because of advances in banking and the federal insurance that protects our money.

2. Convenience

Putting money in a bank account isn't only safe, it is also convenient. When you need some money, you don't have to go all the way to the bank to get it; you can simply write a check or swipe a card.

Our smartphones are also making banking even more accessible. A March 2015 report by the Federal Deposit Insurance Corporation, or FDIC, estimates that 38 percent of all mobile users have banked on their phone and 52 percent of all smartphone users took advantage of mobile banking in the 12 months leading up to the survey.

3. Control

All my life I have suffered from a leaky memory. One of the things I can never remember is what I spent money on … when I use cash. When I use a bank instrument of some kind, they conveniently remind me at the end of every month what I spent money on (even on those things I'd rather not remember). To me at least, that is a big-time benefit.

That written record we get every month from the bank is not only convenient — it helps my wife and I control our money far more effectively than if we'd paid cash for everything, because it enables us to track our budgets so much more accurately. Tracking your budget is much more difficult when you work with cash. Using the month-end bank statement makes budgeting (and financial success) so much easier.

Very few people have achieved long-term success in their personal finances without a budget. And few things make a budget work like the tools banks give us. Back when my wife and I started our budgeting with the cash envelope system, it didn't take long for problems to set in. We would be at a gas station, needing to fill up the old van, but the gas envelope was at home. So we would dip into the food envelope. If we weren't careful, we would forget about that. And at the end of the month, it was hard to recall how we'd spent the food budget.

The slate of modern bank services gives us control of our finances not just by helping us budget. Most here on Get Rich Slowly understand the importance of planning for our retirement (however that may look for you). The most common instruments people use for their retirement investing — things like Roth IRAs and employer retirement plans like the ubiquitous 401(k) plan — cannot function without banks.

4. Choice

Never in our history have we had the luxury of so many choices for how to manage our money. When I grew up, you had a savings account and a checking account and that was it. Now you can have several savings accounts and CDs, all linked with different kinds of checking and money market accounts, debit and credit cards and who knows what else. Although interest rates of savings accounts and CDs have been minuscule in recent years, there was a time (and there will come a time again) when those paid real money, and they formed a vital part of your financial portfolio.

Even with low interest rates, a savings account should still be a key part of your finances, both for an emergency fund or a staging place for your other investments. As interest rates rise again, and they will, strategies like laddering CDs will become a viable investment choice again too.

5. Lifestyle Enhancement

The Census Bureau tells us that more than 60 percent of all homes are owned by their occupants. Until home mortgages took off after World War II, that figure was not much more than 40 percent. Few things have impacted our quality of life like the ability to own our own homes … and that would have been impossible without banks.

Debt is a double-edged sword. Many tales abound of folks who used other people's money to increase their net worth, but far more traumatic are the stories of people whose finances were ruined by debt. Whichever way you slice it, the fact that bank credit is available as an option has enhanced our lives in more ways than we might realize.

The way I see it, banks provide valuable services to us which, when taken together, enable us to pursue our goals without much thought.

What are the most important benefits of banks as you see it? What services do you think banks will provide in the future?

More about...Banking

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My Factoring Network
My Factoring Network
4 years ago

Banks are the financial institutions which actually is a back bone to our economy. They provide security to our money assets and other financial documentation. The most important is having a savings account for every individual to put their savings in. Also these institutions provides a solution to the double-edged sword known as “debt”. Thanks for sharing.

sm
sm
4 years ago

Small business are the backbone of our economy…banks are a tool.

Karthigan Srinivasan @ StretchADime
Karthigan Srinivasan @ StretchADime
4 years ago

Banks are the best place for emergency funds. As you highlighted, with the interest rates about to rise, we should start looking at CD laddering for better returns on our savings and emergency funds. If you are interested in finding out more about how CD laddering produce a much higher yield, please read my post – http://stretchadime.com/cd-laddering

Dee
Dee
4 years ago

this was a very thoughtful post. I appreciated this perspective on something that we sometimes view as a necessary evil.

freebird
freebird
4 years ago

As someone who doesn’t run a business or own a house, my list would be: (1) access to FDIC insurance on my deposits (2) day-to-day convenience in terms of being able to collect wages and pay bills (3) access to safety deposit boxes One service where I’d like to see banks more involved is in online identity authentication. It would be great to replace our current cluttered mess with some central repository that can vouch for us so we can do our business with e-mail, social media, online shopping, etc, without having to deal with individual distinct account IDs plus… Read more »

Beth
Beth
4 years ago
Reply to  freebird

I second safety deposit boxes! I still have to go to the bank to get change for the laundry machine too.

Tyler @tjphilz5
Tyler @tjphilz5
4 years ago

Both articles were great, I use the bank as a tool to reach my other goals such as buying a car or maybe someday a house. Banks are truly important many people view them as the enemy when nothing could be further from the truth.

Tristan @ Dividendsdownunder
Tristan @ Dividendsdownunder
4 years ago

They provide access to money without us needing to lug around our chest of gold every where.

skeptic
skeptic
4 years ago

Haha. While I can’t claim to know what sparked this article, as I read it and all the ads around it are for banks, lending products, and credit cards (supplied by banks), it comes off as the product of:

“Hey, our advertisers are tired of getting trashed in the media and would like a bank-positive article. So, William, can you give us 500 words on Why Banks Are Really Good?”

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