Do you really need a bank?

The answer is not as clear-cut as it once was. Consider the alternatives.

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Key takeaways

  • Your brokerage firm may offer many of the same services you can find at a bank. Plus it may be a convenient way to manage your money—in one place.
  • Credit unions also offer banking services—with potentially fewer fees than banks.
  • Banks are still good for loans and most have convenient locations for in-person transactions, but mobile banking has made the brick-and-mortar bank less vital.

Stopping by the local bank branch used to be part of most Americans' everyday routine, like picking up milk and bread at the grocery store. But changes in technology have made banks less central in many people’s lives. Plus, banks now have more competition when it comes to basic banking services.

In addition to online banks, community banks, and credit unions, many brokerage firms have started offering their customers a range of financial services that are similar to those found at conventional banks—and Fidelity is one of them. "Brokerages have come to believe they can offer many of the services a bank would offer, either directly or through third-party arrangements," says Erik Lind, vice president of cash management products at Fidelity Investments. "These include the ability to write checks against brokerage accounts and link debit cards to those accounts for easier access via either ATMs or point-of-sale transactions, or through brokerage accounts that have been set up to act like checking accounts."

"Some brokerage firms have also introduced enhanced cash management services, including mobile deposit and bill payment functionality, to better compete with banks," says Lind.

Banks have expanded their services too. Services such as retirement planning, asset allocation, and managed accounts—all previously available primarily at brokerage firms—can now be found at some banks.

You may not even miss your bank

Fewer people make trips to the bank these days. Indeed, it's hard to remember when it was necessary to visit a branch to perform a simple transaction like a funds transfer. Now most transactions, including mobile check deposits, can be completed with the tap of a finger or a click of a mouse. As a result, banks across the country are closing branches, citing the high costs of operating those branches and the decline in traffic from customers at their branches.

Banking services offered by brokerage firms

A decade ago, the financial crisis brought challenges and opportunities to the financial services industry. "Brokerage firms saw a great opportunity to look at their services and find ways to close the gap with banks," says Lind. Now you can get some bread-and-butter banking services at the same place you hold your investments accounts.

FDIC insurance. Bank accounts are FDIC insured up to $250,000.1 But at some brokerage firms (Fidelity included), it is now possible to have uninvested cash balances swept to multiple banks, making those balances eligible for well over $1 million of FDIC insurance coverage.2 "If you wanted to do that directly at a bank, you'd have to set up differently titled accounts or have your funds literally placed in different banks," says Lind.

"A more convenient way to gain the expanded coverage may be to open one account at a brokerage provider that can automatically cascade your assets throughout its bank network coverage, rather than having separate deposits in a bank or multiple banks," says Lind.

Cash management services. Brokerage firms don't have as many branches as most major banks, so in the days before online banking, it was difficult for them to offer services that required initial branch visits, such as direct deposit or bill payment. Now that online and mobile banking is widespread, some brokerage firms offer a wide range of services, including direct deposit, mobile deposit, and online and mobile bill payment, as well as check writing capabilities and debit cards linked to brokerage accounts, most of which previously were solely the domain of banks.

Credit cards linked to investment accounts. Some brokerage firms partner with third parties to offer their customers credit cards that may provide a boost to an individual's investment account. For example, clients using a brokerage-linked credit card might accumulate cash rewards that are deposited in their retirement or investment accounts.

Relief from fees. Fees can add up. The average monthly checking account maintenance fee is about $5.84. ATM fees for noncustomers to use bank ATMs average $4.69, according to Bankrate.3

There are ways to get around bank fees—not all checking accounts charge maintenance fees or they are waived after jumping over some low hurdles such as setting up direct deposit.

You can also shop around for low or no-fee options like those offered by online banks, community banks, credit unions, and brokerage firms where you may find debit cards, checkwriting, bill pay services, and reimbursement of ATM fees.

Trouble-free transfers to brokerage accounts. Some brokerage firms allow their clients to link checking and other banking accounts with their investment accounts. This arrangement simplifies the process of transferring money in and out of brokerage accounts—giving clients access to their cash when they need it, or enabling them to add to their investment portfolio quickly and easily. Moreover, consumers can arrange for brokerage assets to cover overdrafts on checking accounts, potentially avoiding steep fees.

Traditional banking features can even be added to brokerage accounts—letting you write checks, pay with a digital wallet, or pay bills straight from your investment account.

Some benefits of banks

Despite the expanded offerings of brokerage firms, banks provide some services that are difficult to find elsewhere. These include:

Availability of personal loans. Most notably, businesses and consumers looking for personal loans are typically best off heading to a bank. "Brokerage firms generally are not in a position to provide this type of consumer lending," says Lind. This means any consumer who needs a mortgage, car loan, home equity loan, or personal loan is likely to require the services of a traditional bank or a specialty online provider of these lending products.

A way to establish credit. If you're trying to establish credit or get a loan with a scarce credit history, having an established banking relationship with the lender may help you get a loan. It's not a sure thing, of course, but it could be one mark in your favor. A good credit record means that you have a better chance of qualifying for a loan, and possibly getting a better (meaning lower) interest rate on a loan. This means that you may be able to pay less money (in interest) for the amount of any money you have to borrow.

A sense of comfort and tradition. Many bank customers are just more accustomed to walking into a bank or using their bank's online services. Some people may feel more comfortable with bank services and like having their money in one place. Other people are just reluctant to change their banking practices, or they may value a nearby, in-branch relationship that may be easier to find at a local bank.

Plus, banks with local branches do usually offer some convenient services to customers, like having a notary public on staff and free cashier's checks.

Be sure to weigh the pros and cons of any change

So do you still need a bank? Like most financial decision-making, there is no one right answer, just the answer that is right for your particular needs and circumstances. Before making any decision, it's important to weigh the pros and cons. The changes in the financial services industry have brought more options to consumers, which means you get to choose the banking relationship that works for you.

Next steps to consider

Manage your cash and spending alongside your investments.

Answer simple questions to see if your finances are on track.

A forgotten financial account could be declared abandoned.

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1. FDIC insurance covers all deposit accounts, including checking and savings accounts, money market deposit accounts, and certificates of deposit. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
2. The Fidelity® Cash Management Account is a brokerage account designed for spending and cash management. It is not intended to serve as your main account for securities trading. Customers interested in securities trading should consider a Fidelity Account®.
The Fidelity® Cash Management Account's uninvested cash balance is swept to one or more program banks where it earns a variable rate of interest and is eligible for FDIC insurance. At a minimum, there are five banks available to accept these deposits, making customers eligible for nearly $1,250,000 of FDIC insurance. If the number of available banks changes, or you elect not to use, and/or have existing assets at, one or more of the available banks, the actual amount could be higher or lower. For more information on FDIC insurance coverage, please visit www.FDIC.gov. Customers are responsible for monitoring their total assets at each of the Program Banks to determine the extent of available FDIC insurance coverage in accordance with FDIC rules. Refer to the FDIC-Insured Cash (Core) Disclosure Statement and list of eligible Program Banks for details. The deposits at Program Banks are not covered by SIPC.
All Fidelity ATM withdrawal fees will be waived for your Fidelity® Cash Management Account. In addition, your account will automatically be reimbursed for all ATM fees charged by other institutions while using a Fidelity® Visa® Gold Check Card linked to your account at any ATM displaying the Visa®, PLUS®, or STAR® logos. The reimbursement will be credited to the account the same day the ATM fee is debited from the account. Please note that there is a foreign transaction fee of 1% that is not waived, and which will be included in the amount charged to your account. The Fidelity® Visa® Gold Check Card is issued by PNC Bank, N.A., and the check card program is administered by BNY Mellon Investment Servicing Trust Company. Those entities are not affiliated with each other or with Fidelity Investments. Visa is a registered trademark of Visa International Service Association and is used by PNC Bank pursuant to license from Visa U.S.A. Inc.
3. Bankrate 2017 Checking Account Survey.
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