Cash In, Cash Out

Adam Rust

Banks love deposits – especially the kinds that consumers make with little or no expectation of a return on the time value of their money. However, it is a headscratcher why those banks charge people to give them money but usually let them take money out of their accounts for free.

Sometimes it costs money to make a deposit

Consumers do not pay anything when they use direct deposit. Until b2p faster payment solutions reach scale, direct deposit will remain the best way to receive a payment.

Using a smartphone to deposit a check can be very convenient. As soon as ATMs started accepting checks, I stopped walking into a branch. Remote deposit is even better because it eliminates the need to drive to an ATM. By my way of thinking, the remote deposit is one of the main reasons to download your bank’s app. It should be your backup to direct deposit.  

Some banks will let a worker deposit their paycheck by remote mobile deposit for free. However, that is not always the case. Rather than devote capital to building check deposit into their app, some banks partner with third-party electronic check deposit services like INGO Money. Typically, consumers pay either 1 or 4 percent of the face value of their check to deposit with the service. The amount depends upon the timing of the credit.

However, while digital tech reduces the friction of deposits, cash is still clunky. If you have access to a branch bank, you can make a deposit inside the branch or at an ATM. However, you are using a branchless service; you will probably have to buy a “load.” MoneyPak, the most popular of all load services, charges $5.95 to add up to $500 to an account.  

You do not earn much to keep your money in the bank

These days, checking accounts rarely pay interest, and if they do, the rates only amount to one-tenth of one percent. The best online savings accounts pay 1.5 percent right now. To earn that, you might need to park more than $10,000. Less than that and you will probably make one percent. If you open an account in a branch, you will be lucky to receive more than ½ of one percent.

Banks love when you keep much money in your checking account. Banks lose money on most of their checking account relationships, but they make up for some of that by having a few account holders who routinely leave many thousands of dollars in their account. People say that rich people do not make financial mistakes. Well, that is not true. Only rich blockheads make an interest-free ten thousand dollar loan to a bank.  

Picture of card
ATM costs

Play by the rules, and you can withdraw your money for free

In this country, you should never pay money to take money out of an ATM. The same goes for withdrawals made inside a branch – it is going to be free unless you go to the wrong bank. If you have a card not associated with a branch bank, you should use a surcharge-free ATM network.

·         Once MoneyPass completes its rollout of ATMs inside 7-Eleven stores nationwide, it will have 33,000 surcharge-free ATMs. 

·         AllPoint has 55,000 free ATMs. Banks, credit unions, and prepaid card programs participate in AllPoint. As a condition of belonging to the network, entities must make their ATMs free to other users.

Other free networks include the VISA Plus Alliance, Accel, NYCE, and CU24.  

Account holders do not pay to make a withdrawal at an in-network ATM. Once they do that, their bank cannot capture any revenue from their holdings. The money is gone. The song is over. It is all behind.

How much did it cost your bank to let you withdraw your money? Let’s consider a hypothetical situation where a consumer withdraws $1,000 from a bank account at an ATM.

Consumers spent $34 and $37 per transaction (Federal Reserve Payments System Study)  respectively, using prepaid debit and traditional debit cards in 2015. That corresponds to 29 and 27 transactions. At twenty-two cents in interchange per swipe, a bank has foregone as much as $6.38 and $5.94, respectively, when a customer withdraws $1,000.  

It is about money laundering

To be fair, there is a good reason that explains this seemingly contradictory policy. Cash presents a challenge to regulators who want to enforce anti-money laundering (“AML”) laws.

According to a 2015 report, many drug traffickers launder their cash by depositing it into accounts held in the name of other individuals. Some banks now prohibit third-party cash deposits, although most still choose to “run with scissors.” 

A company like Green Dot has to collect some identifying information before it can credit an account with the funds from a purchased load. If that were not the case, then all kinds of malicious actors would use prepaid debit cards to transfer dollars.

It is not hard to see how well-suited a prepaid debit card cash load is for this purpose. In most cases, there is no need to determine the identity of the person purchasing the money load. The only person who must be identified is the holder of the account that receives the funds. There is an exception to the rule: when a person buys more than $10,000 in loads, then the issuing bank must determine their identity.

Given the need to put safeguards in place against criminal activity, companies who sell “loads” have to charge consumers for their services. Ultimately, that is a cost that we will pay every time. Nonetheless, the cost of that system is borne by well-meaning underbanked consumers who need to move cash into digital forms. 

Net/net - we incent ATM withdrawals and penalize the act of making deposits. But in a better world, it wouldn't cost money to deposit cash to a prepaid debit card account.

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