Checking Accounts: They're Actually Useful

Why do we need this

A checking account is a place to store and transfer your money. You can think of it like your piggy bank from when you were a kid except now its also managed by someone else.

Traditionally, banks would store your money in a checking account for you and you could easily put money in by visiting a bank and giving them cash or withdrawing the cash. Your bank would also give you a checkbook where you could write on a piece of paper that you'd like to give money to someone else.

These are some nice features.

Now lets say you want to invest your money. Then you'd give your bank this money and this money will then be given to other companies. If those companies do well, then you are rewarded for investing money to help prosper said companies. These are called investment accounts.

This is a nice feature.

Now lets say you spend $10,000 per month on credit. This means you should always have $10,000 in your checking account. That way, you can actually transfer that money to those credit companies you owe.

To state the obvious, this also means that your $10,000 is not invested in anything. Instead, it is reserved for the periodic flow of your cash. This reservation can be nice. If your checking account is always able to handle your expenses, then you don't have to worry if you have enough in your checking to pay whatever you need to pay!

Sure, suppose you stored that $10,000 in some other account with some growth in it, and we assume a 5% annual gain. Then your money would grow on average 5% every year and after 30 years you'd have made $33,219 just because you stored that money in that 5% growth account! Heck, even after 10 years, you have made $6,288. Thats a good amount of money for sitting on your butt and doing nothing at all.

However, is that really true? Are you really sitting on your butt doing nothing at all for $33,219 over 30 years? No, you are not "doing nothing at all". Instead, you are saving $1,107 per year during your 30s, 40s, and 50s and constantly worrying about whether or not you have enough money in your checking account. Suppose you do not use credit cards. Then you are pretty much deadlocked. You have no money to spend because its somewhere else. Suppose you do use credit cards. Then you need to make sure you are paying back your debtors in a timely manner every time your checking account gets refreshed with your income. You do not want to live this lifestyle.

Hence, you are paying $1,107 per year (assuming a $10,000 monthly spend) for the freedom of knowing your cash flow is pretty much automated way and you don't need to check it--unless your spending more than $10,000, of course.

This also got me thinking, why did I think checking accounts are useless? I thought they were useless because if my money is not growing then it isn't doing much for me. This is a fallacy. Money is supposed to enhance your living. So you should use it wisely.

Is the $1,107 per year, or $92.25 a month, during your 30s, 40s, and 50s worth not having to worry about whether or not your proverbial piggy bank will be fat enough to cover your lifestyle? I think so.

I will not talk much about these services, but neobanks may offer some new solution outside of this checking vs savings paradigm.