5 ms·

I disagree very strongly with that. Here are a few rational reasons that someone may choose to not have their money in a bank: - Moral conflicts. Most banks us

by cryptoz 13y ago

I disagree very strongly with that. Here are a few rational reasons that someone may choose to not have their money in a bank: - Moral conflicts. Most banks use your money for purposes that many people consider evil, so choosing to not give them your money is a rational choice. - Lack of trust. Many banks over the last century have run out of money and been unable to honour withdrawal demands/requests. It's reasonable and logical not to trust them to keep your money and give it to you when you ask. - Inconvenience. If you don't have very much money, having a bank account is a drain on your resources (fees, mostly) and your money is not immediately accessible. There are plenty of other reasons, too. Running away from people you owe money to is certainly not the only rational reason for not having a bank account.

woofyman 13y ago
USA banks are federally insured, so there's no risk in losing your money. Running away from creditors is not a valid reason. They can sue you. They can't directly take your money.
- cdh 13y ago
  Well, that's not quite true. There is always a small risk of losing some (or even all) of your money, particularly if you have a large amount in your account. Obviously that risk is very, very low for smaller amounts of money.
  - bhickey 13y ago
    There are risks we should be concerned about, and risks we should not be concerned about. If you stuff money under your matress, the risk of losing it to a house fire or robbery are several orders of magnitude greater than losing it in a bank run. Assuming your account is under the FDIC limit, how could you lose money on an insured account? Suppose there's a massive bank run and the Fed has to print oodles of cash to repay depositors. This leads to runaway inflation that occurs over a very short period. If you could have otherwise exchanged your cash on hand for a different currency, sure you would have lost money. Compared with the actual risks of being unbanked, this is a hallucinatory concern.
- woofyman 13y ago
  250k is the insured limit. You can open accounts in multiple banks if you have more cash than that.
_delirium 13y ago
> Many banks over the last century have run out of money and been unable to honour withdrawal demands/requests. It's reasonable and logical not to trust them to keep your money and give it to you when you ask. Within the last century, yes, but quite far back within it: the last time anyone with modest amounts of money in the U.S. lost deposits in a bank failure was 1933, the year the FDIC was created. You can still lose money in a bank failure if your deposits are above the FDIC insurance limits, but poor people by definition would not have that much money, so it wouldn't explain their choice not to use banks.
- Plasmoid 13y ago
  The bigger risk if your poor is not having access to your money while the FDIC sorts out the problems. Now, I don't know how long it would take to restore access to your money in a bank closure but, for a lot of these people, having your funds frozen for a week or two would be crippling.
  - shawn-furyan 13y ago
    There was a This American Life episode during the financial crisis when interest in bank failures was high. They followed an federal takeover of a bank, and from what I recall, it was an extremely swift and surgical procedure. The don't inform the bank ahead of time when they're going to take it over, because the last thing they want is a bank run. For that reason they also try to disrupt banking hours as little as possible if at all. [edit: here's the episode, very interesting listen: http://www.thisamericanlife.org/radio-archives/episode/377/Scenes-From-a-Recession http://www.thisamericanlife.org/radio-archives/episode/377/S...]
    - ben1040 13y ago
      There are also instances though where the FDIC can't find another bank willing to acquire the failed institution, so it can't just close on a Friday and then reopen on Monday as a branch of a new bank. One of those happened just last week: http://www.fdic.gov/bank/individual/failed/commbank-ct.html http://www.fdic.gov/bank/individual/failed/commbank-ct.html So it seems like in an instance like this, while you get a check for your insured deposits from the FDIC, your bank is gone and presumably any auto-debits or outstanding checks would fail to clear. You get to wait for the FDIC to mail you a check. Then you'd have to find yourself a new bank. This seems like something that would be fairly disruptive even if you are not poor.
notahacker 13y ago
Mistrust of banks' ability to honour withdrawal requests is largely irrational in a developed country given the existence of government-backed deposit insurance (and the much greater risk of having your cash stolen). I'd actually consider this to be the classic example of irrational mistrust based on a limited understanding of who actually loses out as a result of bank failures, and overconfidence in one's ability to keep hold of their cash. The inconvenience argument might be true for some[1] people in some countries but is a complete non-starter in my country where retail bank accounts with a positive balance usually are usually fee-free, as are most forms of transfer between domestic bank accounts, most debit card payments and cash withdrawals from most ATMs. It's hideously inconvenient not to take advantage of all that ([1] I understand that somewhere like the US depositors' costs from basic use of the banking system might sometimes be even higher than those levied by non-bank financial service providers they use instead...) Granted, the moral conflicts argument has a bit more standing, but arguably only if you apply the same standard of scrutiny to other entities you choose to purchase goods and services from (most of whom will deposit your payment in a bank account...). It's not like there aren't banking service providers that have at least seen the marketing benefits of an ethical stance
- nullc 13y ago
  > but is a complete non-starter in my country where retail bank accounts with a positive balance usually are usually fee-free, But not penalty free. A few months ago, I clicked a form twice in my online brokerage and accidentally doubled a ACH transfer from my bank account. Since I was transferring more than half, the double transaction was too much. My bank hit me with a $25 fee. No big deal to me— but to many poor people a $25 fee could start a spiral of overdrafts which would leave them hopelessly short money. To someone in that situation an arrangement which charged them 5% per transaction would be preferable to one which carried any risk at all of an overdraft spiral of doom.
- jellicle 13y ago
  > Mistrust of banks' ability to honour withdrawal requests is largely irrational in a developed country given the existence of government-backed deposit insurance (and the much greater risk of having your cash stolen). I'd actually consider this to be the classic example of irrational mistrust based on a limited understanding of who actually loses out as a result of bank failures Pretty much every developed country has spoken in the last few years of forcing depositors to take losses in the event of bank failures, and some have actually done it. Governmental deposit insurance SHOULD be inviolate, but that isn't the way the regulators are talking and acting. Meanwhile, how many HNers are currently praying that Mt. Gox will stay liquid long enough to give them back their money?
RougeFemme 13y ago
The biggest reason is the over-abundance of fees that eat into your balance.

by cryptoz 13y ago

woofyman 13y ago

USA banks are federally insured, so there's no risk in losing your money. Running away from creditors is not a valid reason. They can sue you. They can't directly take your money.

cdh 13y ago
Well, that's not quite true. There is always a small risk of losing some (or even all) of your money, particularly if you have a large amount in your account. Obviously that risk is very, very low for smaller amounts of money.
- bhickey 13y ago
  There are risks we should be concerned about, and risks we should not be concerned about. If you stuff money under your matress, the risk of losing it to a house fire or robbery are several orders of magnitude greater than losing it in a bank run. Assuming your account is under the FDIC limit, how could you lose money on an insured account? Suppose there's a massive bank run and the Fed has to print oodles of cash to repay depositors. This leads to runaway inflation that occurs over a very short period. If you could have otherwise exchanged your cash on hand for a different currency, sure you would have lost money. Compared with the actual risks of being unbanked, this is a hallucinatory concern.
woofyman 13y ago
250k is the insured limit. You can open accounts in multiple banks if you have more cash than that.

_delirium 13y ago

> Many banks over the last century have run out of money and been unable to honour withdrawal demands/requests. It's reasonable and logical not to trust them to keep your money and give it to you when you ask. Within the last century, yes, but quite far back within it: the last time anyone with modest amounts of money in the U.S. lost deposits in a bank failure was 1933, the year the FDIC was created. You can still lose money in a bank failure if your deposits are above the FDIC insurance limits, but poor people by definition would not have that much money, so it wouldn't explain their choice not to use banks.

Plasmoid 13y ago
The bigger risk if your poor is not having access to your money while the FDIC sorts out the problems. Now, I don't know how long it would take to restore access to your money in a bank closure but, for a lot of these people, having your funds frozen for a week or two would be crippling.
- shawn-furyan 13y ago
  There was a This American Life episode during the financial crisis when interest in bank failures was high. They followed an federal takeover of a bank, and from what I recall, it was an extremely swift and surgical procedure. The don't inform the bank ahead of time when they're going to take it over, because the last thing they want is a bank run. For that reason they also try to disrupt banking hours as little as possible if at all. [edit: here's the episode, very interesting listen: http://www.thisamericanlife.org/radio-archives/episode/377/Scenes-From-a-Recession http://www.thisamericanlife.org/radio-archives/episode/377/S...]
  - ben1040 13y ago
    There are also instances though where the FDIC can't find another bank willing to acquire the failed institution, so it can't just close on a Friday and then reopen on Monday as a branch of a new bank. One of those happened just last week: http://www.fdic.gov/bank/individual/failed/commbank-ct.html http://www.fdic.gov/bank/individual/failed/commbank-ct.html So it seems like in an instance like this, while you get a check for your insured deposits from the FDIC, your bank is gone and presumably any auto-debits or outstanding checks would fail to clear. You get to wait for the FDIC to mail you a check. Then you'd have to find yourself a new bank. This seems like something that would be fairly disruptive even if you are not poor.

notahacker 13y ago

Mistrust of banks' ability to honour withdrawal requests is largely irrational in a developed country given the existence of government-backed deposit insurance (and the much greater risk of having your cash stolen). I'd actually consider this to be the classic example of irrational mistrust based on a limited understanding of who actually loses out as a result of bank failures, and overconfidence in one's ability to keep hold of their cash. The inconvenience argument might be true for some[1] people in some countries but is a complete non-starter in my country where retail bank accounts with a positive balance usually are usually fee-free, as are most forms of transfer between domestic bank accounts, most debit card payments and cash withdrawals from most ATMs. It's hideously inconvenient not to take advantage of all that ([1] I understand that somewhere like the US depositors' costs from basic use of the banking system might sometimes be even higher than those levied by non-bank financial service providers they use instead...) Granted, the moral conflicts argument has a bit more standing, but arguably only if you apply the same standard of scrutiny to other entities you choose to purchase goods and services from (most of whom will deposit your payment in a bank account...). It's not like there aren't banking service providers that have at least seen the marketing benefits of an ethical stance

nullc 13y ago
> but is a complete non-starter in my country where retail bank accounts with a positive balance usually are usually fee-free, But not penalty free. A few months ago, I clicked a form twice in my online brokerage and accidentally doubled a ACH transfer from my bank account. Since I was transferring more than half, the double transaction was too much. My bank hit me with a $25 fee. No big deal to me— but to many poor people a $25 fee could start a spiral of overdrafts which would leave them hopelessly short money. To someone in that situation an arrangement which charged them 5% per transaction would be preferable to one which carried any risk at all of an overdraft spiral of doom.
jellicle 13y ago
> Mistrust of banks' ability to honour withdrawal requests is largely irrational in a developed country given the existence of government-backed deposit insurance (and the much greater risk of having your cash stolen). I'd actually consider this to be the classic example of irrational mistrust based on a limited understanding of who actually loses out as a result of bank failures Pretty much every developed country has spoken in the last few years of forcing depositors to take losses in the event of bank failures, and some have actually done it. Governmental deposit insurance SHOULD be inviolate, but that isn't the way the regulators are talking and acting. Meanwhile, how many HNers are currently praying that Mt. Gox will stay liquid long enough to give them back their money?

RougeFemme 13y ago

The biggest reason is the over-abundance of fees that eat into your balance.