There are a million apps and services out there that will let you pay bills and move money around, but you still need a bank account. Yes, banks can be kind of crappy, but there’s a reason less than 5% of the population is unbanked: It makes everything more costly, and more difficult.
But despite the crucial importance of a bank account, you don’t actually have a right to one. Banks can refuse to let you open an account in the first place, refuse to accept a check for deposit at their discretion, and can close out your accounts and send you—and your money—packing any time they want, for a wide variety of reasons. And they do just that, all the time, usually without any explanation. Add in the prevalence of bank fraud and the real possibility that you won’t get your money back even if it was clearly stolen and you did nothing wrong, and it's clear that while not having an account isn't an option, having one can be a nightmare.
Instead of trying to live a cash-only life or moving to the wilderness to live off of berries, there’s one thing you can do to protect yourself: Have a backup bank.
How you bank can screw you over
It’s a nightmarish scenario: You have a checking account with Bank A, where your paychecks are directly deposited and from which you pay all of your bills. One morning you wake up to a long list of bounced checks, failed debits, and late fees—and a note from Bank A that your account has been closed due to “suspicious activity,” or some other vague reason.
The bank is required to return any funds still in the account to you, but this is often in the form of a check that can take some time to reach you. In the meantime, you don’t have access to your funds and you can’t pay your bills easily—and your job has nowhere to send your paychecks. Once you get that check you can open up a new account at Bank B, of course, then switch everything over there. But in the meantime, it’s chaos.
The benefits of a backup bank account
But if you already have an account at Bank B, you can jump straight to redirecting all of your debits and deposits (including your paycheck) to that account. Suddenly, the surprise closing of your account at Bank A is just an inconvenience instead of a financial crisis. If you’re someone who has almost all of their bills paid via a points-earning credit card, you might need to visit just two websites to get your finances back on track in the wake of an account closure—your credit card and your job’s HR department.
A backup bank account can also act as quasi-emergency fund. A checking account at Bank B likely won’t be earning much interest, but it will also likely sit undisturbed, and since it’s not directly connected to your daily spending, you won’t be regularly tempted to dip into it.
Additionally, money in bank accounts is federally insured up to $250,000—but that limit applies to banks, not your overall net worth, so if you have substantial savings, having money in separate accounts allows you to have more funds protected by the Federal Deposit Insurance Corporation (FDIC).
Finally, if you choose to have your backup account at a local bank as opposed to an online behemoth, you might enjoy better customer service and perks like the ability to easily cash checks or talk to an actual human being, in person, if you have problems or questions.
The downside of using a backup bank
On the other hand, having multiple bank accounts increases the amount of work you have to do to keep track of everything. If you’re not careful, your second account could end up costing you in terms of fees if you don’t maintain a required minimum balance, and for maximum efficiency you’ll need to make a note of all the account information so you can quickly switch payments and deposits to the backup bank should anything go wrong with your primary bank.