You have a bank account, but have you ever questioned why? You need one to receive your paycheque, and to pay your household bills. But have you ever thought of your bank account as a type of investment?
A bank account, is on the face of it, a piggy bank that enables you to build a footprint. A bank account is something that helps you to prove that you exist, and allows you to start building up a credit rating. But when you place money with a bank, the bank uses that money for loans and other investments. They get something out of your money, so you should be rewarded for this.
Through your bank account you would usually get access to a debit card and may also have a credit card, loans when required, mortgages etc. All of these financial products help to build a picture of your wealth and enable you to reach your goals that you work so hard to achieve.
Bank accounts are, or should be, protected by the government, and this is one of the key benefits of having one. In the UK this is known as the Financial Service Compensation Scheme, and that means that if anything were to happen to the financial services organisation you bank with, your money, up to a certain limit, would be protected. If your money was in cash, and somebody took that cash, there is little (or even nothing) that you could do to get that back.
Is it time to turn your back on the bank account?
However, the world of banking is changing, these businesses (and we should look at them in this way) carry a huge amount of debt (leverage). If this were any other type of company most investors would run for the hills. But instead, because it’s a bank, millions of individuals lend money to a bank for free.
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Their technology costs are astronomical with new platforms that enable mobile banking plastered over systems that have existed for decades. These legacy systems, have legacy bolt-ons, and to modernise these systems would be extremely expensive.
When you start to look at a bank in this way, it really makes you question why you use one. Now interest rates are low, and in some cases lower than inflation, there is little to nothing that you get from your bank, and over time this scenario means you could see your wealth decrease. The business model is struggling and the products banks have on offer leave much to be desired.
In most cases banking is free and you don’t have to pay for your bank account, and why should you get something for nothing. So should banking be free? Or should individuals start paying for a better quality of service.
Can I avoid it?
The challenge is, can you avoid having a bank account? Previously the answer to that question would have been no, but now many of the benefits you would have had from a traditional bank can be found in the Fintech space, with the same level of protection.
You will always need a current account so you can receive your salary, pay your bills, and buy the things that enrichen your life. But the days where you leave your wealth in a bank account are arguably behind us. 0% interest should not be a reality that individuals accept, but it isn’t in a bank’s interest to point that out to you, the onus is currently on the individual to shop around and make money work harder.