Increasingly, there are more and more alternatives to traditional banks and savings accounts. From fintech to mobile banking and money market funds to cash management accounts, you’ll have plenty of options to consider in the changing world of personal finance. Here’s a look at:
• Alternative banking options, including money market accounts, cash management accounts, and more
• The pros and cons of mobile banking
• Credit unions vs. P2P lending vs. traditional banks.
Alternative Banking Options
Aside from the old-school savings and checking options offered at traditional banks, there are other options that allow you to save and withdraw cash.
Money Market Accounts
Money market accounts (MMAs), also known as money market deposit accounts (MMDAs), are a type of interest-bearing savings vehicle that was developed several decades ago. In general, these accounts offer relatively lower risk for investors than other types of investments because they are insured by the Federal Deposit Insurance Corporation. These accounts would typically offer higher interest rates than traditional savings accounts because the funds can be invested into government securities, certificates of deposit (CDs), and other vehicles. However, in today’s market, the gap is often not so great.
These accounts often combine features of a savings account and a checking account. For instance, if you are an account holder, you may or may not be limited to the number of monthly withdrawals you can make, which is standard with some savings accounts. However, you may also have a debit card, as you would with a checking account, to make transactions more seamless.
It’s worth noting that, even though they may sound alike, money market accounts and money market funds (a type of investment) are very different financial products.
Cash Management Accounts
A cash management account (or CMA) combines traits of a savings account with a checking account, allowing account holders to both save and spend. These accounts are typically offered by non-bank fintechs, such as online investment firms or robo-advisors.
Rates can be competitive while allowing the account holder to make withdrawals as needed. This is in contrast to the types of accounts that limit transactions allowed per statement cycle.
Sometimes, checks are provided with cash management accounts. They may also come with debit cards and access to ATMs.
The funds are typically dispersed into accounts at banks where FDIC insurance keeps the money safe.
Alternative Options vs Traditional Savings Accounts
Here’s a quick look at how money market accounts and cash management accounts differ from traditional savings accounts:
Fintech
Fintech is short for “financial technology,” a term used to describe financial services with essential, integrated technology. Some forms have become so commonplace that users don’t necessarily even consider them as fintech. An example would be using a mobile payment app. When considering fintech vs traditional banking there may be other products that are more clearly alternative banking solutions. An example of this could be buying and selling cryptocurrency.
Besides mobile apps and cryptocurrency, other fintech examples may include:
• Digital-only banks, meaning ones without brick-and-mortar branches
• Artificial intelligence (AI), such as those used in chatbots to answer customer questions and with robo-advisors to help with investing
• Biometric technologies that make it easier to log into apps while also providing additional security.
Pros and Cons of Mobile Banking
Most traditional banks and credit unions offer mobile banking today as part of their services. Basically, mobile banking allows customers to check their balances and transactions online, deposit checks on their phones, and transfer funds digitally.
Because online-only banks typically don’t have physical branches, overhead costs can be lower for them. They may then pass those savings onto their customers, as well as often provide perks beyond those provided in a traditional bank. Here’s a look at some of the pros and cons of online banking:
Consumers who bank online should take appropriate precautions to avoid fraudulent activity. Online banking is very safe, but nothing is completely without issues in this era of hackers and scammers. Wise moves include not accessing private information on public Wi-Fi, not checking banking information on public computers, and using debit cards on protected sites only. These steps may help to reduce the odds of security-related problems with online banking.
Credit Unions vs. Traditional Banks
When you’re looking for a place to open a checking or savings account or find loan products like a mortgage, credit unions can be an alternative to traditional banks. Here’s a look at how the two options compare:
Peer-to-Peer Lending vs Traditional Banking
In recent years, peer-to-peer (P2P) lending has sprung up as an alternative to traditional bank loans. It’s a form of direct money lending that bypasses official financial institutions in which investors provide funds to would-be borrowers. Here’s a side-by-side look at the two forms of lending:
Switching Bank Accounts
If you’re happy with your current traditional bank and bank accounts, you may be content to stay put. However if you’re unsatisfied or looking for tools that aren’t available at your bricks-and-mortar bank, then there may be reasons to switch bank accounts. Here are some questions to ask yourself and reasons you might want to make a change.
• Fees: Review what’s being charged, from minimum balance and maintenance fees to significant overdraft fees and more. If they’re adding up at a current bank, it may be worth researching alternative banking solutions to see if fees are similar or perhaps even less than what’s currently being charged.
• Customer service: How long does it take for an issue to be resolved, such as a fraudulent withdrawal? During what hours is the customer service line available? Are you currently being treated as a valued customer?
• Life event: Is a wedding or other kind of partnership in the near future? This may be a time to open a joint account. See if your current financial institution offers the right features for you and your partner.
• Convenience: Is the brick-and-mortar bank branch location inconvenient, perhaps after a move? Do ATMs come with hefty fees? Can you conduct all the transactions you want to with your mobile device?
• FDIC insurance: Is your current bank FDIC-insured or is your current credit union NCUA-insured? Are there any other safety and security concerns with that financial institution? Insurance can provide peace of mind.
• Mobile features: Are more features available at an alternative banking choice that are of interest? This could mean mobile check deposits, reimbursement of ATM fees, overdraft forgiveness, or a more user-friendly online portal.
How Many Bank Accounts Should You Have?
If a person decides to open an alternative bank account, does it still make sense to hang on to whatever traditional accounts they may already have? The short answer is that the number of bank accounts a person maintains is an individual decision. There may be benefits to having multiple accounts, but it’s also more to juggle.
Reasons it makes sense to have multiple accounts can include:
• Having separate accounts for different purposes; for example, one savings account could be earmarked for emergencies, while another might contain funds being saved for a down payment on a house or for college expenses.
• Couples may decide they like the idea of having separate accounts as well as one for joint expenses.
• Freelancers and small business owners may want to separate personal banking from business banking.
Challenges associated with maintaining multiple accounts can include:
• The risk of overdraft
• More banking fees
• More logistics involved to manage them all.
If more than one bank account is open, it can be important to find out how to transfer funds from one account to the other, as needed. If all of the accounts are held at the same institution, most banks have simple procedures to set up transfers, such as ones from a checking account to a savings account. This can often be done by filling out a form. Or, this can often be done through an ATM.
If bank accounts are held in different financial institutions, the information needed to complete a transfer will typically include routing numbers and account numbers. Banks may have slightly different procedures.
The Takeaway
There are many different ways to manage your money today, including whether you keep it with a traditional bank, a credit union, or an online bank or other kind of fintech. You’ll also have options like a standard savings account vs. a cash management account vs. money market account. Understanding the options available and the pros and cons of each will help you make the best decision for you. There usually isn’t a right or wrong choice, but an option that checks more of the boxes on your wishlist. It’s up to you!
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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How to bounce back from bankruptcy
Each financial situation leading to bankruptcy is different, but the end result is often the same: your credit is ruined and you’re facing up to 10 years of having a bankruptcy on your credit report. But you get a potentially debt-free fresh start and the opportunity to avoid any potential money mistakes of your past.
You can now focus on bouncing back after ruining your credit and putting the financial pieces of your life back together. These 11 important steps could help you build good financial habits so you can rebuild your credit.
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If you know what led to your bankruptcy, you know what actions and habits to avoid in the future. This may not apply if you racked up debt from a serious medical condition or something similar that was out of your control. But spending more than you can afford or mismanaging your finances can quickly lead to bankruptcy if the unexpected occurs.
This could include losing your job or getting divorced. An unexpected financial strain may have caught you off guard, but you can prepare better this time around. Include an emergency fund in your financial plans, as well as other solutions for past bad habits.
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It’s especially important to frequently check and monitor your credit report after a bankruptcy. This will give you a starting point for where you are and a measuring tool for how much you’re progressing in the future. It’s also vital to make sure you read your credit report to spot any potential errors.
Disputing credit report errors can help you remove obstacles that may be blocking your credit rebuilding process. As you get errors fixed and continue to monitor your report, be sure to check your progress at the same time. Your credit report directly correlates to your credit score, so when you see positive information being reported, it’s likely your score is improving too.
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Setting and sticking to financial goals will help you correct bad money habits and might even help you cope with financial stress. If you have clear and realistic short- and long-term goals in mind, it can be easier to focus on changing your financial situation.
Your goals will be unique to your situation, but they could include a long-term goal of growing your credit score to 600 or more. This goal may involve multiple short-term goals, one of which may be slowly introducing credit products back into your life.
Remember to keep track of your goals so you can see how far you’ve progressed and get the motivation you need to continue pushing forward.
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On-time payments play a big role in positive credit history, accounting for 35% of your FICO® score, which is one of the most widely used credit scoring models. If you want to make sure you don’t miss any payments, consider using the automatic payments feature.
Autopay is typically available for most bills and lets you set a date each month to automatically pull funds from a linked bank or credit account to pay your bills. This can help you avoid missed payments and work toward rebuilding your credit.
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Creating a budget can help you learn how to pay off debt by putting limits on your overall spending. This typically involves adding up all your monthly income and expenses and seeing where you can cut down on spending. When you understand where your money is going, it can be easier to make adjustments and stay on track with financial goals.
There are several budgeting styles ranging from basic to complex, but the budgeting process can be as simple as setting aside income for necessities, including groceries and utilities, and then putting away some of what’s left into savings.
It may also be worth thinking about placing your money in a high-yield savings account. The best savings accounts offer higher-than-average interest rates that could help grow your funds over time.
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Financial opportunities might be slim after a bankruptcy, which is why it could make sense to seek financial guidance from a reputable credit repair company. The best credit repair companies might help you get negative items removed from your credit report, which can potentially increase your credit score. Some also offer valuable financial guidance, which may help you get your finances back on track. Keep in mind that credit repair services cost money, so weigh the pros and cons of using them before making a decision.
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Setting up autopay can help you avoid missed payments and work toward developing a positive payment history. But if you want to take it one step further, consider using a tool like Experian Boost™ to get better credit scores.
Experian Boost is a free service from Experian, one of the three major credit bureaus, which may help boost your FICO® Score with positive payments on common expenses. This could include utility bills, your Netflix payment, and your phone bill. If you aren’t able to use credit products to grow your credit, Experian Boost offers a convenient alternative to get positive payment information on your credit report.
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Your credit score will be hurting after a bankruptcy, which means you likely won’t qualify for the best interest rates on credit cards or loans. It may be tempting to take out a loan if you need some money, but payments on high-interest loans can be hefty and you might not be able to keep up. This could easily set you down a path to end up in debt again and harm your credit even more.
If you’re losing sleep over money, be sure to have a plan in place before deciding to go with a high-interest loan. You need to be certain you can make the payments and that the lender is reputable and easy to work with. But overall, it’s likely not worth taking out a high-interest loan unless you have no other alternatives.
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Credit-builder loans aren’t like your typical personal loan where you borrow money and pay it back with interest over time. Instead, these loans often hold your borrowed money until it’s fully paid off and then release it to you. So if you need money quickly, this probably wouldn’t be the avenue to take. But if you want to build your credit history, a credit-builder loan could make a lot of sense.
As you responsibly pay off the loan, your positive payment history is reported to credit bureaus to help increase your credit score. This is an opportunity for building your credit history when you can’t qualify for other credit products.
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Secured credit cards can also help you build your credit history if you have poor or no credit. These cards typically require a refundable security deposit to qualify, which will act as your line of credit on the card. So if you deposit $300, you would have a $300 line of credit.
The best secured credit cards report your on-time payments to credit bureaus to help improve your credit score. In addition, they function just like typical credit cards, so you shouldn’t have any issue using them to make everyday purchases in stores or online.
Certain secured credit cards may offer you higher credit limits over time or give you the opportunity to upgrade to an unsecured credit card. This means the security deposit restriction would be removed and the deposit refunded and you would get a typical line of credit.
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Your credit score may tank after bankruptcy, but you’ll still have options for rebuilding your credit with different credit products. This includes credit cards for poor credit, with more than a few options to choose from. You have to expect any rewards earning potential on these cards to be rare, and some of them may have annual fees or security deposits. But to get back to pre-bankruptcy levels of credit, you have to start somewhere.
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Bankruptcy isn’t the end of the road for your finances. In fact, it’s far from it. These tips can help you get back on track by giving you actionable steps to take immediately following a bankruptcy. It might be difficult to see where you can end up over time, but setting short- and long-term goals can help you track your progress and push forward.
If you’re thinking about filing for bankruptcy, remember to weigh the pros and cons of bankruptcy in your life before making a decision. It will likely ruin your credit, so you’ll have to rebuild your credit history from the ground up. But it can help eliminate eligible debts at the same time. Considering these and other factors can help you make the decision that makes the most sense for your financial future.
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This article originally appeared on FInanceBuzz.com and was syndicated by MediaFeed.org.
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