The Importance of Having a Backup Bank Account

There are countless apps and services today for paying bills and managing money, but having a bank account remains essential. While banks can sometimes be difficult to deal with, being unbanked—less than 5% of the population—is costly and inconvenient.

Despite its importance, having a bank account isn’t a guaranteed right. Banks can deny you an account, refuse checks for deposit, or close your account abruptly for various reasons, often without explanation. Coupled with the risks of bank fraud and potential delays in recovering stolen funds, having no account isn’t an option, yet having one can be fraught with challenges.

Rather than resorting to a cash-only lifestyle or extreme alternatives, one proactive step is crucial: maintaining a backup bank account.

How Banking Can Go Wrong

Imagine the nightmare scenario: Your primary checking account (Bank A) suddenly closes due to “suspicious activity,” leaving you with bounced checks, failed debits, and unpaid bills. While the bank must return your funds, it’s typically in the form of a check, causing delays in accessing your money and managing financial obligations. This disruption can be chaotic, especially if your paychecks are no longer being deposited.

Benefits of a Backup Bank Account

If you already have an account at a backup bank (Bank B), you can swiftly redirect all transactions—including paychecks and bill payments—to that account. This mitigates the impact of account closures, turning what could be a financial crisis into a manageable inconvenience. For those who manage bills through a points-earning credit card, restoring financial stability post-account closure may only involve updating two online accounts: the credit card and your employer’s HR department.

Additionally, a backup bank account can serve as a quasi-emergency fund. Although it may not accrue high interest, its separation from daily spending reduces temptation to dip into savings. Moreover, keeping funds in separate accounts ensures more of your money is federally insured by the FDIC, up to $250,000 per account.

Opting for a local bank for your backup account may offer better customer service and perks like easier check cashing or face-to-face assistance.

Considerations

Having multiple bank accounts requires careful management to avoid fees and maintain minimum balances. Efficiency hinges on promptly updating account information for seamless transitions between primary and backup banks if issues arise.