I once had a (lovely) boyfriend who didn’t believe in banks. And by he didn’t believe in banks, I mean that one day I came over and found him sitting on the bed surrounded by $30,000 in cash like Scrooge McDuck*. I almost had a heart attack.
You have to really have a massive distrust in the government and the economy in general to make a safe in your closet even a reasonable place to store $30,000. (And if you distrust the government and economy that much then if something terrible happens then your money will be worthless anyway, so either way you’re screwed and you would have been better off investing in a zombie apocalypse survival kit.)
How do banks work?
Have you seen “It’s a Wonderful Life?” when George and Mary have to spend their honeymoon money to keep the town afloat when the banks crash? They had to do that because banks don’t physically have all of the cash that has been invested in them on hand.
Banks take their client’s money and they invest it. Clients get security (you don’t even have to buy your own closet safe!), access to cash (ATMs, bank tellers), checking services, and advice from real live bankers. Banks do a lot of other things too, like notarize forms and help with loans. Really good banks will pay you some interest for putting your money into their system, and really crappy banks will charge you fees so that they can make more money even though they already make money off of your money.
Banks are making money off of you, and you get some things back in return. If you have faith in the government and/or the economy, the scene from “It’s a Wonderful Life” should never happen again, because almost all banks (any bank that you should feel good about using) are FDIC insured.
This sounds complicated but it really just means that if your bank crashes the Federal government will reimburse you up to $250,000. If you have more money than that sitting around in the bank, I appreciate you reading my blog, but this is probably not the most useful site for you.
So, the conclusion of this post is:
You have to use banks if you want to excel at personal finance (unless you truly don’t believe in society, in which case…why are you on the internet?)
*He used all that cash to invest in his own small business. That is a good investment. A better investment than leaving that cash in your safe in the closet.