Banks or Money in the Sock Drawer?

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I recently had a question or rather a comment made to me that I believe needs some serious attention. Especially in a time like this. That comment was about not needing a bank account because banks are too complicated, to expensive and I have a perfectly good sock drawer. I know - I was pretty shocked too. If I asked you to define the term "under-banked" what comes to mind? For me, my mind goes straight to the visions of someone slamming money into their mattress at the end of every pay period. What's so bad about that you ask? Well if you are a woman in Tel-Aviv last week it meant throwing away a million dollar mattress on accident. What we are going to do today is take a look at some of the big points to the lure of both and hopefully by the end the person who made the comment to me about their sock drawer will see the error of their ways.

First we will start with the lure of physically holding large amounts of cash -

• Easy to keep track or account for spending. You only have as much as you physically can count.
• Feelings of safety. It's in a hidden place that you have access too 24/7.
• Spending and saving under the radar of financial institutions and the IRS. Where there's no paper trail there's no evidence.
  
  • Small businesses and people a like might be inclined to under report earnings to lessen the blow from the IRS every April. That's a very real pro that needs to be mentioned. (Not endorsing it just saying I can understand why it happens)
• No fees for handling.
• Can't inadvertently overspend because once you are out of cash, you're out of cash.
• If you have debt that gets a little out of control. Institutions don't have access to your sock drawer. 
• Not susceptible to bank errors, misplaced deposits, etc.

Now for some of the cons -

• You become a target for thieves carrying around exuberant amounts of cash.
• How safe is your is your sock drawer or hiding spot from break-ins, fires, or even people that you thought were close to you. 
  • Similarly if you lose that wallet or purse there's no way to recoup that loss. As opposed to correcting fraudulent charges via debit card.
• Costs - How much is it costing you to cash your checks every week or two. How are you paying your bills if not electronically then it takes time and postal costs.
• Not earning interest - at all. Ok, I know this one isn't a huge loss because your everyday basic savings account return is negligible but it's still pennies that you didn't have before.

Bank Pros -

• Banks and financial professionals are everywhere. The opportunity for consuming information that will help improve your financial situation is a huge advantage. Unless you have someone in your sock drawer willing to help you out.
• Safety. Not just the FDIC insuring deposits but your funds are co-mingled so there's not really any worries of fires or flood wiping out your life's savings. 
  • Consuming with plastic becomes a little safer because if you lose your wallet funds can be recovered that are spent illegally.
• Ease of track-ability and use. Whether you're buying coffee or paying your car insurance using your debit card saves you time and money. 
• Supports your credit score which is important in the economic environment we are in now. 
• Earned interest. Again even pennies were pennies you didn't have before. 
• I know it's a cost but the ability to over spend or take advantage of a time-to-available-balance arbitrage can come in handy from time to time.
• Some physical businesses and anything having to do with e-commerce will not take cash so the only way to consume is electronically.
• If I can't see it, I won't spend it. The extra motions to going to withdraw funds from ATM's creates inadvertent opportunities savings.  
• Ability to make large purchases. 
• Availability to credit or the chance to qualify for credit.
  
  • Mortgages, car loans, etc.

Bank Con's -

• There costs associated with bank accounts. Monthly maintenance fees, overdraft costs, and sometimes too many transactions can incur costs.
• Hours are limited for support and services.
• Support calls can be overly complex and frustrating.
• Daily withdraw/spending limits.
• Accounts can be subject to collections.
• Time before funds available between deposit and need for spending.
• Constantly being "sold to" at every bank interaction. 

I know that all four of these lists can go on and on but I was just trying to get some of the bigger points out there. I hope that everyone that comes across this, one reader in particular, sees that there are some great benefits to using banks. As reported by the FDIC the number of households in the US that are under-banked (no savings or checking accounts) is about 7.7% as of May of 2010. So the excuse that "everyone is doing it" simply won't fly here! Using banks opens the doors to financial possibilities even if times are a little shaky for you at the moment.

LEAVE IN COMMENTS:

Are there any reasons for any of the above lists that I missed that lead you to believe one way or the other?

Are you treated better when you spend in cash?


Comments

[Michael Whitehouse]

This is a great post. After the ups and downs of the last few years, too many people are throwing out the baby with the bathwater in trying to avoid dealing with big institutions. I would suggest that those who are worried about another WAMU or Citigroup should look at local banks, most of which are still quite healthy because they did not invest in wild derivative schemes. As a bumper sticker I see around a lot says, "Don't blame me. I bank locally"

[Shawn]

"Accounts are subject to collections" as a con is the reason why I don't use a bank now. After having my bank account 'collected upon' and cleared out by the government it took them years to admit their mistake and I'm currently being repaid the two thousand dollars they took at a rate of $10 a month.

Yes, you do get some funny looks carrying around large amounts of cash, but there are some deals that you can make on large purchases by offering cash. I don't recommend it for home-buying but I've known people who have bought new cars with cash and the dealerships are willing to knock down the price if you can give them 'cash on the spot' rather than going through a bank/lender.

[Nunzio Bruno]

Shawn - I'm sorry to hear that happened to you and at the rate at which the repayment is happening is borderline ridiculous. You do have some good points and I have friends and family that do the same thing as far as the upper-mid range purchases go. Just make sure however you keep your financial house in order that it is as safe as possible.

Micheal - I love to support the smaller institutions myself. There is a better chance that my deposits are going back into the community in the form of loans to help stimulate it. Plus I kind of like when I walk into a place and the staff remembers my name :)