5 Modern Banking Services You Might Take for Granted

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Although banks aren't the most beloved institutions out there, there's a ton of useful stuff we can do with a modern bank. Many people around the world are "unbanked," meaning they don't have a bank account—and that means they miss out on all sorts of conveniences that we, the banked, often take for granted.

In South Asia, 78 percent of working adults are unbanked; in sub-Saharan Africa the number is 88 percent. Here in the United States, an estimated 1 in 12 households is unbanked. Here's a look at what the unbanked are missing out on.

1. Direct Deposit

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Many working adults never actually see a "paycheck" per se; instead, the funds are automatically deposited in their bank accounts on payday. Direct deposit is used both for paychecks and for government assistance programs, so money goes directly into the account, bypassing the physical check stage.

Direct deposit has two obvious benefits: because it's automatic, you don't have to "do" anything to get the money, and there is no physical paycheck to lose on the way to the bank. There are other benefits, though—if you don't have a bank, you likely take your paycheck to a check-cashing service, which can take a cut ranging from 2.5% to 10% of your income. Also, once you have a wad of cash in your pocket, that cash is vulnerable to theft.

In Afghanistan, where 95% of the population is unbanked (!), employers are experimenting with mobile payments to deliver paychecks, as a way to introduce the benefits of banking to working adults. A pilot program in Kabul is delivering mobile payments to 500 teachers, which saves them the hassle of standing in line at a bank—and gives them a mobile bank account as part of the deal. (This is one of our 6 Ways Cell Phones Are Changing the World.)

In addition to direct deposit, mobile deposit services are becoming popular. With a mobile phone and an app from the bank, you can deposit checks from anywhere, saving you the hassle and risk of bringing checks to the bank, mailing them, or feeding them into an ATM.

2. Access to ATMs

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ATMs are a tremendous privilege, but they're so commonplace now that it's easy to overlook their value. ATMs allow the user to access cash at (or near) the point of purchase, rather than carrying cash on you at all times. If you keep your money in the relative safety of a bank (rather than under your mattress), withdrawing a few bucks to buy dinner is a convenient way to access your money when and where you want it. This reduces the danger of theft.

ATMs also increasingly provide banking services like deposits and money transfers in addition to simple cash withdrawal. When an Automated Teller Machine can do the majority of what a human teller at a bank could do—and that ATM is available at the convenience store near where you live or work—that's a huge convenience. Simply cutting out trips to the bank saves time and money.

3. Access to Credit Cards

While credit cards can be problematic, if used properly they're an extremely useful tool—and potentially a way to bridge the gap between one paycheck and the next. If you don't have access to a credit card but need immediate access to cash, the main alternative in the U.S. is a payday loan. These loans often carry absurdly high fees. The New York Department of Financial Services explains, "The annual percentage rates on payday loans are extremely high, typically around 400% or higher." While credit card interest is often painfully high, it's not "typically 400%."

Credit cards also have the benefit of fraud protection mandated by federal law, at least in the United States. Generally, you're liable for a maximum of $50 if your credit card is used for fraud. (Debit cards differ; CNN reported, "if a fraudster uses your debit card, you could be liable for $500 or more, depending on how quickly you report it.")

4. Online Bill Payment

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In the absence of online bill-payment services, paying bills means one of two things: mailing a check, or physically going to an office and handing over money. It's hard for most of us to remember what a hassle this is, but it's easy to calculate how much money you save simply not using stamps to mail checks to various places. (Stamps now cost $0.49 in the US. Multiply that by the various bills you have, and that—plus your time to write checks—is what you're saving by using an online service. My online bill payment service reports that I paid nine bills online last month. That's $4.41 in postage saved, not to mention my time writing out checks and licking envelopes.) Of course, if you don't have a bank, you don't have checks—and money orders cost more than $1, not including postage.

The unbanked don't have the luxury of online bill payments, though some progress is being made with mobile banking and mobile payments. Impatient Optimists wrote, “Paying bills by mobile phone can be up to 40 percent cheaper than a bank visit, says Michael Wakileh, CEO of software company ProgressSoft, which specializes in digital payment systems.”

5. Deposit (and Other) Insurance

In the U.S., the Federal Deposit Insurance Corporation (FDIC) insures each depositor for $250,000 per insured bank. In simple terms, this means that if your bank goes under, and you've got less than $250,000 in there, you'll get your money back. This stands in stark contrast to the old "money in the mattress" model, where your capital is always at risk.

In addition to deposit insurance, many banks and credit unions also offer access to other forms of personal insurance. My credit union offers free life insurance (admittedly not much free life insurance, but it exists) as a perk of membership.

February 28, 2014 - 8:00am
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