Should You Swap Your Bank Account for a Digital Wallet?

Cashless and contactless payment options have been on the rise for years, spurred by the COVID-19 pandemic. Hand-in-hand with these options, digital wallet apps and services have also increased in popularity. An estimated 60% of the global population — 5.2 billion people — will be using digital wallets by 2026, according to a 2022 study from the data analytics group Juniper Research. As digital wallets have become more widespread, are they viable replacements for bank accounts? Here’s what you need to know.

What is a digital wallet?

A digital wallet is an application or service — typically on a smartphone — allowing users to store debit and credit card information and passwords. Some digital wallets can also store electronic tickets, passes, gift cards and personal identification cards, said Francisco Alvarez-Evangelista, advisor at the financial analysis company Aite-Novarica Group, by email. PayPal, Apple Wallet, Google Wallet and Samsung Wallet are some examples. Though you may lean toward using whatever app is associated with your smartphone, you can also download other digital wallet apps.

There is also some crossover between digital wallets and payment apps such as Venmo since many of these apps have begun to offer many of the same features, like peer-to-peer money transfers and special branded credit cards, as well as the ability to store a cash balance in the app. In some cases, such as when paying for an item or service, the terms “digital wallet” and “payment app” could be used interchangeably.

Can I use a digital wallet instead of a bank account?

You can use a digital wallet instead of a bank account, but there are some significant caveats to consider.

A digital wallet is essentially a collection of your payment cards in one place, but it could also be a place to keep cash, such as your Apple Cash or Venmo balances. This tactic has some downsides, namely that you don’t earn interest, and the Federal Deposit Insurance Corp. might not protect your funds. Some exceptions exist; Venmo, for example, takes funds directly deposited or deposited through the “cash a check” feature and sweeps them into partner bank accounts so that customer funds can be FDIC-insured. As far as interest goes, however, you’re more likely to earn a good return on your money by putting it into a high-yield savings account instead, where interest rates have been increasing.

“While it is possible to replace a bank account with certain digital wallets, most consumers have banking needs that exceed what most digital wallets today offer,” Alvarez-Evangelista said. “While not all digital wallets are the same, most consumers look to digital wallets to augment their financial experiences online.”

A mix of digital wallet apps and bank accounts might meet your needs better than using one alone since you might need different apps when sending money to different people. Also, if you have credit cards compatible with specific digital wallet services — such as the Apple Card or the Venmo credit card — then having the companion app can lead to additional benefits, like bonus cash back.

How to use a digital wallet

Open or download the app. If your mobile device has a built-in wallet, e.g., the Apple Wallet on an iPhone, you may want to explore the app to see if it suits your needs before downloading another app. If you’d prefer to use another service, perhaps to pay a merchant at a farmers market that only accepts a specific app, you can download a new one.

Create a profile and add your payment info. Your app should walk you through the setup process, where you’ll create a user profile. After your profile has been set up, you should be able to link different debit cards, credit cards and bank accounts to the app. Your app may also allow you to hold a money balance in the app, similar to a bank account, in that you’ll be able to add to it and withdraw from it.

Use your smartphone to make contactless transactions. If you’re using a smartphone digital wallet, your phone will be able to be “tapped” at a payment terminal, using near-field communication for the transaction to go through as the two electronic devices trade payment information.

Consider whether you want to maintain a balance in your wallet. As mentioned above, a digital wallet might not be the best option for storing liquid cash, especially not large amounts. However, having a small balance available can be helpful when you need to send money to friends or family on the fly, such as to pay for your share of a dinner tab. You can also link payment cards or bank account information if you don’t want to pay from your app balance.

Does Closing a Bank Account Affect Your Credit?

Ready to close a bank account but worried you could ding your credit score? Don’t be.

By taking a few simple steps and practicing good banking habits, you can avoid having your credit affected by a bank account closure. Here’s what you need to know.

Generally, closing a bank account doesn’t affect your credit

The mere act of closing a bank account doesn’t have a direct impact on your credit. The Consumer Financial Protection Bureau confirms that the three major credit bureaus — Experian, Equifax and TransUnion — don’t typically include checking account history in their credit reports. But your credit could suffer if you’re not careful when you close an account.

Your credit score could drop if your bank account isn’t in good standing

Some blemishes in your bank account history could affect your credit. For example, if you close an account while the balance is negative or a bank closes your account because it’s overdrawn for an extended period, the negative balance could go to a third-party collection agency. That could lead to your credit report being marred.

“If the bank sends this outstanding debt to a collection agency, it could be reported to any of the three credit bureaus,” Marguerita Cheng, certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, said in an email. “Collections can trigger a drop in your credit score.”

How to close your bank account so your credit isn’t affected

You’ll need to make sure that your account is in good standing and remains that way even as you close it. Here are the steps to close your bank account properly:

1. Make a list of recurring deposits and withdrawals. Note the bills and payments paid by direct debit from your account periodically. It’s just as important to note any deposits you get, even if they’re only occasional. You don’t want your tax refund to go to a closed bank account, for example, said Miguel Gomez in an email. Gomez is a wealth advisor at Lauterbach Financial Advisors in El Paso, Texas, and host of the podcast “Dinero en Español.”

2. Open your new account and move money and automatic transactions to it. “If you have automatic payments drawn from the account you’re closing and you don’t update them before closing the account, that can affect your credit due to missed payments,” Gomez said.

3. Settle any balances on your old account. You should leave some cash in your old account to cover any pending transactions you might have overlooked, Cheng said. You can also contact your bank to ask if you have any outstanding balances. If you opened an account to take advantage of a cash bonus, make sure your account has been open for the minimum time required to avoid an early closure penalty fee.

4. Close your old account and confirm its closure. Once you’ve ensured there are no pending transactions, you can close your account. You might be able to complete the closure online, but some financial institutions require that you fill out a mail-in form, visit a branch or call to close your account.

The bank may send you an email to confirm the account closure, or you can contact a representative by phone or in person to confirm the account has been closed and request confirmation in writing.

Note that if your account earned interest or a cash bonus over the year, you’ll need to get the proper paperwork from the bank for your taxes.

Follow these steps when you close your bank account and you’ll avoid fees, missed bills and credit woes.

Ruth Sarreal writes for NerdWallet.

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Is Your Bank Greenwashing? Here’s How to Check

Your bank plays a role in climate change through its lending and other actions. But is your bank making a positive environmental impact? It can be hard to know.

Through their messaging, banks sometimes paint a greener picture of their impact on the climate than what their holdings or other factors indicate, a process known as “greenwashing.”

If your decision on where to bank hinges on an institution’s approach and position on climate change, here’s how to tell whether a financial institution might be greenwashing.

Why does greenwashing matter?

Making banks accountable for overstating their positive claims is an important way of pressuring them to do better about their role in climate change. And if you want to do more, support a bank that divests from fossil fuels and supports effective climate solutions.

Greenwashing can do “one of two things: either it directs investment that wants to go into [climate] solutions away from it or it makes people feel jaded about the space entirely and that this is not solvable,” says Zach Stein, co-founder of Carbon Collective, an investment advisory firm that creates portfolios that focus on curbing climate change.

What is greenwashing in banking?

Greenwashing is misleading or even false messaging about a company’s climate benefits or commitments, whether in annual reports, advertisements or elsewhere. There’s no standard definition of environmentally sustainable banking, which means banks can set their own definitions or methodologies to describe their impact.

The ways that banks lend, invest and underwrite loans are “the most exponentially impactful things they do” for the planet, not “paperless statements and energy-efficient buildings,” says Paul Moinester, co-founder and executive director of The Outdoor Policy Outfit, a think tank aimed at building systemic solutions to environmental issues.

And there’s a clear North Star: The world needs to bring carbon emissions to net zero by 2050 in order to limit rising global temperatures to a 1.5 degrees Celsius increase, according to the United Nations’ 2015 Paris Agreement and its 2021 update. The goal is designed to prevent the worst effects from climate change. The International Energy Agency, aligned with the mission, advocates for two clear actions in its 2021 report:

  • No new investments in fossil fuels.
  • Investing in climate solutions, especially green energy.

For banks committed to climate action, “you have to do both of those things. If you’re not, we argue that you’re in some degree greenwashing,” Stein at the investment firm Carbon Collective says.

4 ways to identify greenwashing in banking

1. Read your bank’s impact reports carefully

Search online for your bank’s name plus “impact report” or “ESG report.” ESG — environmental, social and governance — is a common framework for ethics-driven finance such as ESG investing. The biggest U.S. banks typically have long annual reports and webpages detailing their impact. Smaller banks may not always maintain reports online, so check their recent news updates or what green networks they belong to (more on that later).

For national banks, “we look for how clear are [their] statements around de-carbonizing their investments, specifically removing fossil fuels,” Stein says.

Look at their summaries and be wary of vague verbs such as “mobilized,” “deployed” or “facilitated” financing. The bank’s specific role or steps to reach its commitment might be unclear. And if a bank created targets or methodologies for reduced carbon emission, are they based on a third-party standard to enhance accountability? Are the emission reductions aimed at their investments or their buildings? Investments have a bigger impact.

2. See if your bank finances fossil fuels

Greenwashing at big U.S. banks can include supporting fossil fuels and making political efforts such as lobbying or contributing against climate change, the latter being harder to research, says Sierra Club’s Adele Shraiman, representative for its fossil fuel finance campaign.

Two main resources stand out when investigating a bank’s ties to oil, gas and coal companies: the annual fossil fuel finance report by nonprofits Rainforest Action Network and Sierra Club, among others, and a bank tracking tool by the independent organization BankTrack.

The report shows the 60 biggest financial institutions worldwide that are responsible for fossil fuel expansion through lending or other means of support, such as underwriting bonds and equity. BankTrack provides a directory where you can search for a bank or deal linked to fossil fuels.

The four largest U.S. banks are also the biggest global funders of fossil fuels, and another dozen U.S. banks make the report’s list. Just because banks such as Chase and Citibank contribute billions to green projects and say they support a low-carbon future doesn’t make them environmentally friendly.

But the banks stand by their climate efforts.

“We are also taking pragmatic steps to meet our 2030 emission intensity reduction targets in oil & gas, electric power and automotive manufacturing, while helping the world meet its energy needs securely and affordably,” a JP Morgan Chase spokesperson said in an email.

“As part of our commitment to reach net zero by 2050, we have set 2030 targets — for the energy sector, a 29% absolute reduction in financed emissions and for the power sector, a 63% reduction in portfolio emissions intensity … [in addition to] working with our clients on their low-carbon transitions,” a Citi spokesperson said in an email.

3. Check for external certifications — or the lack of them

Financial institutions most committed to driving positive environmental impact tend to get third-party certifications or join networks focused on climate action. Check the bank’s website, either at the bottom or on an About Us page, for designations including Certified B Corporation, Global Alliance for Banking on Values membership, Fossil Free Certified, and Green America Certified.

Another mission-driven movement, 1% for the Planet, requires a business to give the equivalent of 1% of total annual sales to certain environmental nonprofits. However, this certification doesn’t mean a bank divests from gas or oil projects. Bank of the West, for example, has this designation and is owned by parent bank BNP Paribas, which contributes billions of dollars in financing to fossil fuel companies, according to the Rainforest Action Network report.

4. Investigate easy ‘feel good’ tactics

Some financial institutions may describe account features with hard-to-prove or overstated environmental impacts. The nonbank financial tech firm Aspiration, in partnership with a bank, offers a debit card where you “reforest while you shop,” meaning a small amount of every purchase can go toward reforestation. The nonprofit news site ProPublica discovered in November 2021 that Aspiration recently claimed to plant over 35 million trees within a year, but this figure included trees not yet planted.

“As we make clear to our customers, planting trees at this scale the right way with survivability, permanence, and benefits for local communities in mind takes time — up to 18 months but usually shorter,” Aspiration CEO and co-founder Andrei Cherny said in an emailed statement.

“As of June 30th, over 76 million trees have been planted in the ground through Aspiration in less than two years. This almost certainly makes Aspiration the largest private sector reforestation sponsor in the world,” Cherny said.

Support climate solutions

Some banks and credit unions (banks’ not-for-profit counterparts) have renewable energy programs. For example, Climate First Bank and Clean Energy Credit Union both offer loans for electric vehicles and solar panels. And look to other local community banks and credit unions, especially socially responsible institutions, that support sustainable housing or other projects.

“The smaller the banks are, the more environmentally friendly they are just because the majority of their investments tend to be localized,” says Moinester of The Outdoor Policy Outfit.

“All of our cash, all of our investments, hold power,” says Sophie Halpin, certified Sustainable and Responsible Investment counselor and financial advisor at Back Cove Financial.

“And we can send a clear message to companies that they need to do better.”

Spencer Tierney writes for NerdWallet.

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Don’t Bank on Your Business to Fund Your Retirement

Retirement can loom like a dark cloud for small-business owners. Many invest blood, sweat and tears — and every penny — into building their business but never set cash aside for the future.

A huge number of entrepreneurs have reported putting aside no retirement savings at all. For some, selling the business is their only retirement plan.

That’s a risky bet, says Keith Hall, president and chief executive officer of the National Association for the Self-Employed.

“You’re putting all of your eggs in one basket. Not just your current lifestyle, but your future,” Hall says. “If something goes wrong, you sacrifice both.”

And the list of things that could go wrong is long: Your business could fail. Your health could fail. You may not find a buyer. You may have to sell for less than you need. You may not be able to retire fully.

Rather than gamble on everything going right, diversify your nest egg so it will last you well into your later years.

Make retirement planning a priority

Saving for retirement is often the last item on your budget and the first to get cut in favor of other priorities, Hall says. Instead, make it as important as paying your mortgage or running your business.

This won’t come naturally to most entrepreneurs, who are often hyper-focused on immediate needs and tend to plan in three- to five-year increments.

“It’s hard as an entrepreneur and small-business owner to think 20-plus years out,” says Mary Bell Carlson, owner of Carlson Consulting LLC. “I’m often figuring out what I need to do today for immediate cash and long-term profitability.”

But Carlson, a financial counselor and certified financial planner, makes a point to invest where she can. She and her husband contribute to his employer-provided retirement plan. They each also put money into individual retirement accounts, among other investments.

“My biggest lesson has been to start, no matter how small the amount; it’s just important to start,” she says.

Determine what you can afford, whether that’s 1%, 5% or 10% of your gross earnings, and commit to it, Hall says. Over a long enough window, even small, regular contributions will compound into something meaningful.

There are a number of retirement plans for small-business owners, each with requirements, stipulations and tax implications.

  • Traditional, Roth IRA: Individual retirement accounts are easy to open and available to virtually anyone. You can contribute up to $6,000 in 2022 (up to $7,000 if you’re 50 or older). The main difference between traditional and Roth IRAs is whether you want tax savings now or later. Traditional IRAs use pre-tax income, but you pay taxes when the money comes out. With Roths, it’s the other way around.
  • Solo 401(K): Available to business owners with no full-time employees (exception made for a spouse). The contribution limit is up to $61,000 for 2022, though that’s broken into two parts, each with limits. Similar to an employer-sponsored 401(k), contributions are pre-tax and withdrawals are taxed as income.
  • SEP IRA: A Simplified Employee Pension IRA, or SEP IRA, operates much like a traditional IRA, except you can contribute a lot more. Annual contributions are capped at $61,000 in 2022 versus $6,000 for a standard IRA. Another key difference: If you put money into your own SEP IRA, you must contribute an equal percentage to employees. This option is best for solopreneurs or those with few employees.
  • SIMPLE IRA: This option has a lower contribution limit, up to $14,000 in 2022 (for those under age 50), but it offers employee accounts and is easier for small companies to administer than a traditional 401(k). You must offer a 3% match or a blanket 2% contribution to all employees. You can deduct contributions made to your account and those made on your employees’ behalf.

Get input from a professional

Sure, you can try to decode which retirement plan is best for your business. Or you can work with a certified financial planner or registered investment advisor to determine the best path. Doing the latter can give you confidence in your strategy, help you avoid any costly penalties and ensure you don’t leave any money on the table.

If selling is still part of your retirement plan, the help of a professional is essential, says Norm Sherman, a certified mentor with SCORE, a national volunteer organization that offers free business mentorship. First, you need to know whether your business is sellable and what you can realistically expect to net in a sale.

An investment banker or business broker can evaluate your revenue, profit margins, business structure and market to give you an honest assessment and help you better position your business for a future sale.

“It costs you nothing to get answers to these questions,” Sherman says. “Don’t operate blindly; find experts who can help you.”

The content is for educational and informational purposes and does not constitute investment advice.

Kelsey Sheehy writes for NerdWallet.

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4 Bank App Features You Might Be Missing Out On

If you use your bank’s mobile app, you likely have access to an array of features, some of which you may not know about. These features could make saving, earning cash back, budgeting, increasing your financial security and checking your credit score easier depending on what services your bank offers. Here are some features to look for in your banking app and any banking apps you may be considering for the future.

Cash back offers or statement credit on debit spending

Your bank might offer opportunities for special cash back or statement credits either as a flat percentage of your spending or for spending at specific retailers. SoFi Checking and Savings and LendingClub offer these kinds of spending features, as do some major banks such as Discover and Chase. For example, Logan Allec, a certified public accountant and owner of Choice Tax Relief in Santa Clarita, California, says the Chase app helped him discover lots of opportunities for statement credits from debit card spending.

“I was scrolling through the app one day and saw the list of Chase offers for debit card spending,” Allec says. “A lot of them are for places I never shop, but I use home improvement stores a lot and one popped up for the Home Depot for 10% back as a statement credit.”

Budgeting features and insights

Some bank apps make saving and budgeting easier by allowing you to direct money toward specific goals or by giving a better overview of you’re spending.

Sara Lohse, director of marketing at a financial services firm in Austin, Texas, discovered a unique feature for her savings account that allowed her to break up her savings into subaccount “buckets.”

“I use Ally for my main savings account, and I use the savings bucket feature to save for different financial goals,” Lohse says.

She used the buckets feature for saving for a down payment on a house, her emergency fund and house furnishings. Her parents were matching her down payment contributions, so she set up a bucket for that as well.

“I had a bucket labeled ‘Mom, put money here’ so that she knew which bucket to contribute to,” Lohse says.

Another app feature that could help you manage your money? The ability to look at your overall spending trends. PSECU, a state-chartered credit union in Harrisburg, Pennsylvania, offers its customers a “financial insights” tool in their mobile app. The tool gives a monthly recap of your cash flow and how much you spent versus how much you brought into your account, and it learns your spending habits over time.

“If you spend more on Dunkin’ Donuts this month than last month, for example, it’ll trigger an alert for you that your spending has gone up in that category,” says Lindsay Oparowski, director of member experience at PSECU. “Awareness is the first step to budgeting, and that’s the power this tool is giving you.”

Advanced security features

Security is a major consideration for your finances. As a result, more banks are integrating advanced security features such as multifactor authentication, biometric identification for logins, remote card locking and new card activation. Multifactor authentication uses additional methods of verifying that you’re you, such as sending a confirmation number via text or email. Biometric information, including facial and fingerprint recognition, helps confirm your identity to the bank app.

Remote card locking is also available through many apps, and it allows you to render your debit card unusable if it’s missing or if you want peace of mind that no one will try to use it. You can typically unlock the card anytime. If you receive a new debit card in the mail, you can likely activate it from your mobile bank app as well.

Credit score approximations

A more common feature appearing in bank apps is a credit score estimate. These scores are simulated by evaluating the factors that make up a consumer’s regular credit score, but they don’t require a hard pull on the customer’s credit report, which would usually make their score drop a bit temporarily. Credit score estimates aren’t always perfect reflections of your actual credit score, but they tend to be close enough to give you a general idea of your financial standing.

Chanelle Bessette writes for NerdWallet.

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6 Things to Know About Student Loans Before You Start School

The summer before your freshman year in college means choosing classes, checking out your future roommate’s Instagram and figuring out how you’re going to pay the bills.

Chances are you will need a loan: 2 out of 3 students have debt when they leave school, according to 2017 graduate data from the Institute for College Access and Success. But consider a loan after you’ve accepted grants, scholarships and work-study. You can get these by submitting the Free Application for Federal Student Aid, or FAFSA.

Here are six things you need to know about getting your first student loan.

1. Opt for federal loans before private ones

There are two main loan types: federal and private. Get federal loans first by completing the FAFSA. They’re preferable because you don’t need credit history to qualify, and federal loans have income-driven repayment plans and forgiveness that private loans don’t.

You may be offered two types of federal loans: unsubsidized and subsidized. Subsidized loans — for students with financial need — don’t build interest while you’re in school. Unsubsidized loans do.

Take a private loan only after maxing out federal aid.

2. Borrow only what you need — and can reasonably repay

Undergraduate students can borrow up to $12,500 annually and $57,500 total in federal student loans. Private loan borrowers are limited to the cost of attendance — tuition, fees, room, board, books, transportation and personal expenses — minus financial aid that you don’t have to pay back.

Aim to borrow an amount that will keep your payments at around 10% of your projected after-tax monthly income. If you expect to earn an annual salary of $50,000, your student loan payments shouldn’t be over $279 a month, which means you can borrow about $26,000 at current rates.

To find future earnings, look up average salaries in the U.S. Department of Labor’s Occupation Outlook Handbook. Then, use a student loan affordability calculator to estimate payments.

Your school should provide instruction on accepting and rejecting financial aid in your award letter. If you’re not sure how to do it, contact your financial aid office.

“We’re not scary people,” says Jill Rayner, director of financial aid at the University of North Georgia in Dahlonega, Georgia. “We really do want students and families to come in and talk with us so we can help strategize with them.”

3. You’ll pay fees and interest on the loan

You’re going to owe more than the amount you borrowed due to loan fees and interest.

Federal loans all require that you pay a loan fee, or a percentage of the total loan amount. The current loan fee for direct student loans for undergraduates is 1.062%.

You’ll also pay interest that accrues daily on your loan and will be added to the total amount you owe when repayment begins. Federal undergraduate loans currently have a 5.05% fixed rate, but it changes each year. Private lenders will use your or your co-signer’s credit history to determine your rate.

4. After you agree to the loan, your school will handle the rest

Your loan will be paid out to the school after you sign a master promissory note agreeing to repay.

“All the money is going to be sent through and processed through the financial aid office — whether it’s a federal loan or a private loan — and applied to the student’s account,” says Joseph Cooper, director of the Student Financial Services Center at Michigan Technical University in Houghton, Michigan. Then, students are refunded leftover money to use for other expenses.

5. You can use loan money only for certain things

Loan money can be used for education-related expenses only.

“You cannot use it to buy a car,” says Robert Muhammad, director of the office of scholarships and financial aid at Winston-Salem State University in North Carolina. “It’s specifically for educational purposes: books, clothing, anything that is specifically tied to the pursuit of their education.”

You can’t use your loan for entertainment, takeout or vacations, but you should use it for transportation, groceries, study abroad costs, personal supplies or off-campus housing.

6. Find out who your servicer is and when payments begin

If you take federal loans, your debt will be turned over to a student loan servicer contracted by the federal government to manage loan payments. If you have private loans, your lender may be your servicer or it may similarly transfer you to another company.

Find your servicer while you’re still in school and ask any questions before your first bill arrives, says John Falleroni, senior associate director of financial aid at Duquesne University in Pittsburgh. They’re also whom you’ll talk to if you have trouble making payments in the future.

When you leave school, you have a six-month grace period before the first bill arrives.

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The article 6 Things to Know About Student Loans Before You Start School originally appeared on NerdWallet.

From Cryptocurrency to Cash: How to Bank Your Digital Coin

This article provides information for educational purposes. NerdWallet does not offer advisory or brokerage services, nor does it recommend specific investments, including stocks, securities or cryptocurrencies.

Cryptocurrency, the blockchain-based digital currency that has captured the interest of investors and financial service firms alike, has a challenging problem. It can be hard to actually spend this currency like you would regular money. But there are new services on the horizon that could help people use bitcoin and other digital coins in more mainstream ways for their day-to-day finances.

Here’s a look at how to use these banking-style services for cryptocurrency, as well as their benefits and barriers.

What is cryptocurrency banking?

The term crypto banking could be considered a misnomer, since the exchange companies and firms that offer these services aren’t technically banks, but it generally refers to the ways in which consumers can manage their cryptocurrency balances. At this stage, this kind of banking mostly just allows people to hold their funds in a digital wallet or spend it like they would spend traditional money.

Benefits of cryptocurrency banking

At this time, the main benefit of this kind of banking is cryptocurrency debit cards. They allow you to use your digital coin balance like any other currency to make everyday purchases or withdraw it as cash instead of keeping it as an investment.

Before these debit cards were available, you could spend your cryptocurrency only at retailers that chose to accept it directly or sell it in exchange for dollars. Now, financial technology firms are partnering with chartered banks and/or debit card issuers to offer these cards, using their partner’s logistical and regulatory framework to automatically sell your cryptocurrency behind the scenes, converting it into dollars and allowing retailers to accept it. This means that your digital funds are accepted wherever many regular debit cards are.

Barriers of cryptocurrency banking

Perhaps the biggest barrier to lending and spending cryptocurrency is how volatile it is. It’s the same barrier to investing in it: To hold cryptocurrency, you have to accept that “if your coin falls, you could lose a lot of money,” says Francisco Alvarez-Evangelista, a research associate at the Aite-Novarica Group, a financial services analysis firm.

Many banks rely on the stable value of currency in order to lend, borrow or earn interest on money, but it’s not possible, at this time, to do those things with cryptocurrency in a way that’s as stable or safe as with traditional currency.

And to spend your digital coin, you have to accept the risk that its value could go up after you spend it, since your transactions are based on the real-world value of your coin as it exists at that moment. For example, if the value of your cryptocurrency doubled after you bought a $5 sandwich, that means it effectively cost you $10. But the value could also go down, making previous purchases a good deal.

Another barrier to consider is that regulators are still evaluating cryptocurrency fintechs. The U.S. Securities and Exchange Commission recently announced that it was going to potentially sue Coinbase, one of the most well-known exchange firms, for offering a new lending product, and Coinbase has since canceled the product launch.

Consumers should also know that using a cryptocurrency debit card is considered a taxable event by the Internal Revenue Service, since the cardholder is technically selling cryptocurrency as they make transactions with their debit card. Some card issuers may automatically generate 1099 forms for their customers to use when filing taxes, but the consumer is still responsible for keeping track of their tax liability.

How to try cryptocurrency banking

To start using these kinds of banking services, you must first purchase cryptocurrency, such as bitcoin, litecoin, ether or any other currency that you would like to invest in. Cash App, Coinbase and PayPal are just a few companies with apps that have made it easier to purchase and sell cryptocurrency, even in small amounts, and store it in a digital wallet.

If you want to spend your balance easily, you’ll need to open an account with a firm that offers cryptocurrency debit cards and uses the kind of digital currency you own. Coinbase, for one, has a special debit card that lets customers spend any Coinbase assets they own and earn cryptocurrency rewards, but there’s currently a waitlist for new customers. BitPay, another firm, offers a prepaid Mastercard debit card that customers can use to spend their digital currency. There are others, but it’s not a widespread bank offering.

In the future, cryptocurrency could have the potential to be a source of peer-to-peer loans, where individuals can quickly and securely process loans to each other, according to research from CB Insights. It’s a huge area of untapped potential but for right now, the world of cryptocurrency banking is limited to a small pool of players with some very new products and services.

This article was written by NerdWallet and was originally published by The Associated Press. The author held no positions in the aforementioned securities at the original time of publication.

Chanelle Bessette writes for NerdWallet. Email:

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How to Fix an Overdrawn Bank Account

Experiencing an overdrawn bank account can be stressful. Since banks can charge an overdraft fee multiple times a day, fees can add up quickly, piling on to the negative balance and the stress.

The consequences of overdrawing can be serious, so it’s essential to fix your account as soon as you can. The bank may temporarily suspend or even close your account. A closure could go on your record with ChexSystem, an agency that tracks customers who have had problems with their bank accounts. This could make it difficult for you to open future bank accounts, says Bruce McClary, senior vice president of communications for the National Foundation for Credit Counseling.

Here are some steps you can take to recover after an overdrawn account and tips to avoid overdrafts in the future.

Make a transfer to cover the charges

If you have cash in another account, transfer it to cover the deficit and avoid additional fees. That should be the first step you take, says Andrea Brashears-Lusk, a certified financial planner and president and founder of Wise Financial Counsel in Fort Washington, Maryland. For example, some banks charge a fee for having a negative balance for consecutive days, and that fee could be charged multiple times.

Ask your bank for a refund

If your bank doesn’t automatically waive fees for some overdrafts, call your bank and ask for a refund. The bank could be gracious and refund you, especially if it’s your first time or not a recurring issue, Brashears-Lusk says.

McClary recommends taking another step when you call the bank: Discuss how you can avoid overdrawing again. Most banks and credit unions should be willing to help you, McClary says. You might also consider contacting a nonprofit credit counseling agency to get free help on your entire financial situation, he says.

Stop using the account

“Stop using the account, period,” Brashears-Lusk says. This action also will include one-time and recurring transactions, which are tricky to keep track of and could overdraw your account even more. While figuring out expenses versus your cash flow, she recommends using a prepaid debit card to manage spending. To pay bills that require payments from a bank account, pay by money order, Brashears-Lusk says.

Use these tips to avoid overdrafts

Once you’ve fixed an overdrawn account, you can take a few critical steps to prevent overdrawing again.

Track your expenses

“You don’t have to physically balance a checkbook, but you should have some way of tracking expenses,” says Brashears-Lusk. Balancing your checkbook and budgeting don’t necessarily mean you have to stick to a spreadsheet; several budgeting apps could work.

Use low balance alerts

Automated alerts can help you avoid overdrawing an account. You can specify a threshold for a low balance and set up an alert to notify you when the account reaches that balance.

Reconsider overdraft protection

Overdraft protection transfers are an optional service that lets you move money from a linked account to your checking account to cover transactions that would overdraw the account. These transfers are typically cheaper than an overdraft charge and free at some banks, but if they’re not free, they’re a vital charge to consider.

It’s good to have overdraft protection if cash flow is tight and you’re using the bank account as your main account for expenses, Brashears-Lusk says.

But if you’re racking up fees because of frequent overdraft protection transfers, you might be better off opting out and having transactions declined. Beth McCarter, a teacher who lives outside of Dallas and tutors online, says she’s strongly opposed to overdraft protection after her experience with her first bank account in college.

“Within a single day, I had accrued $500 in overdraft [protection] fees,” McCarter says. “While it sucks to be in line and have a cart full of things and have your card declined, I would rather take that.”

Choose the right bank account

A fundamental way to avoid adding to the damage of an overdrawn bank account is to choose a bank that doesn’t charge overdraft fees or offers alternatives to costly overdraft coverage. If you select one of these bank accounts, overdrawing likely won’t be such an issue going forward.

Ruth Sarreal writes for NerdWallet. Email:

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6 Ways to Budget Using Your Bank Account

If you’re having trouble sticking to a monthly budget, the solution might not be in a fancy app or a complicated spreadsheet, but rather in your humble bank account.

Whether your goal is prioritizing essential expenses or curbing a takeout habit, you can put your bank account to work to manage your money, not just store it. Give these tactics a try.

1. Keep your checking balance low on purpose

A simple approach to combat overspending is to get your money out of plain sight. Keeping a low checking account balance “holds temptations at bay and makes it more likely you’ll stick to the plan,” Anand Talwar, deposits and consumer strategy executive at Ally Bank, said in an email. Having just enough money accessible allows you to cover what you need without going over budget or dipping into money that can go toward savings. If you opt to keep a low checking account balance, use an account that has no overdraft fees or easy ways to avoid them in case you spend more than you mean to.

2. Split your money into 2 different checking accounts

One way to keep your checking balance low is to split it up. Pamela Capalad, a certified financial planner in New York City, recommends having two accounts. One account is for recurring expenses, with a buffer for variable expenses such as electricity or gas. The second is for discretionary spending — that is, purchases that are nonessential but still important or useful. This way, you know exactly how much of your discretionary funds are left for the month, Capalad says.

3. Use automatic transfers to safeguard money for essentials

If having two checking accounts is too much hassle, you can preserve money for necessities like rent and utilities by moving cash into a savings account using automatic transfers. Then, set up another automatic transfer to move it back into your checking account in time to make payments. When using a savings account this way, check how many transfers you can make each month without incurring a fee. There could be a limit, though some accounts, including high-yield savings accounts, are currently allowing an unlimited number of withdrawals each month.

4. Store your savings in a different bank than your checking account

People can fall into a trap of viewing the sum of their checking and savings accounts as their spending budget, Capalad says. Keeping your accounts at separate banks so that you see only your checking account balance can help you avoid spending more than intended. This tactic also makes it more difficult to quickly transfer from savings if you’re tempted to spend more.

5. Turn on balance alerts

Some banks send an alert when your balance is low so you’ll know when to hold off on purchases that might cause you to go over budget or even overdraft. You can often choose to receive these alerts by text, email or as a notification through the bank’s app. Your account might also have more targeted alerts available. With Huntington Bank’s Heads Up and Spend Setter tools, for example, you can set budgets to track spending by category and get alerts on your status. So if you create a monthly dining budget of $100, the bank will alert you when you’ve spent close to that amount at restaurants.

6. Try restrictive features to curb spending

Find an account that lets you take a stricter approach to avoid overspending. Ally Bank’s Card Controls, for example, lets you set spending limits for specific transaction amounts or certain merchant categories. With a Discover checking account, you can temporarily freeze your debit card as a more extreme way to prevent spending — certain charges will still go through, but you won’t be able to make any new purchases.

Whether you’re comfortable with the idea of budgeting or new to the concept, there are ways you can use your bank account to stick to a budget. You might not get budgeting right on your first try, or even your first few tries. “Remember, this is all an experiment, and it’s not a pass-or-fail kind of thing,” Capalad says. “You’ll find the system that works for you.”

Ruth Sarreal writes for NerdWallet. Email:

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8 Other Things Your Digital Wallet Can Do for You

Digital wallets, also known as mobile wallets, have grown in popularity over the years. But the freedom to leave all your cards at home isn’t the only benefit users will enjoy. A digital wallet has many benefits outside of condensing physical cards and offering a seamless and secure payment option.

The top three digital wallets are Apple Pay, Google Pay and Samsung Pay. Venmo and PayPal can also function as digital wallets, both in stores and online. A major digital wallet is typically already downloaded to your mobile device or can be downloaded from the app store for free.

Once set up, a digital wallet could offer bonus rewards, lower exposure to germs at the register and help you split payments with friends, among other options. Get to know all of the potential functions of your digital wallet.

1. Declutter your wallet

In addition to organizing your credit cards, a digital wallet can store other items that occupy space in your physical wallet.

Condense your debit and credit cards

Debit and credit cards can all be added to a digital wallet and converted to virtual cards when you input the cards’ information on the app. Depending on the digital wallet, you may also be able to add cards to make purchases from a computer or smartwatch. It’s important to still keep a physical backup payment option or two in case a merchant doesn’t accept digital wallet payments.

Organize cards, coupons, tickets and more

The Apple Wallet stores travel boarding passes, gift cards, coupons, tickets to concerts and sporting events, membership cards like student IDs, transit cards and other documents. Samsung Pay and Google Pay also store your COVID-19 vaccination record. What you can store varies for each major digital wallet.

2. Access some credit cards instantly after approval

When you apply for a new credit card, some credit cards no longer require you to wait for it to arrive in the mail. American Express, for instance, offers an instant card number after approval, which can be added to Apple Pay, Samsung Pay or Google Pay. You can use the digital wallet to start using your card online or wherever it is accepted as a payment method.

Some cards may not even make it into your physical wallet. The Apple Card, for example, offers a physical card option, but you have to request it.

3. Earn bonus rewards

With a digital wallet, you may be able to stack rewards earned from credit cards, promotions or the platform itself.

From your credit card issuer

Some credit cards offer special incentives when you upload them to a digital wallet. U.S. Bank, for example,  offers a card that earns 3 points per dollar on purchases made with a mobile wallet and rewards in other categories, too. The Apple Card earns 2% cash back on purchases made using Apple Pay in addition to rewards in other categories.

Through the digital wallet

Samsung Pay and Google Pay offer the chance to earn additional rewards when shopping with select merchants through their app. Depending on the option, you may have to activate rewards and follow instructions to earn them. Terms may also apply. It’s a chance to stack rewards earned from both a credit card issuer and your digital wallet for even more value.

4. Send and receive money

Whether you’re picking up the check or paying back a friend, Apple Pay, Google Pay and Samsung Pay facilitate sending and receiving money with a bank account, debit card or the balance in the app’s account. Apple Pay, for instance, lets you add Apple Cash by loading money into the app from a debit card or other source to send money.

5. Split the bill easily

When sharing an expense as a group, you can pick up the tab, rake in a pile of credit card rewards and get your friends to reimburse you. Some digital wallets like Venmo and Google Pay, offer a way to easily split the bill.

With Venmo, you can request a payment from one or several contacts in the app. You can also change the amount requested for each user. Google Pay allows users to track the status of payments made by contacts in the app. Use these options cautiously because if you’re not reimbursed, the bill is your responsibility.

6. Track expenses

Some digital wallets, like Google Pay, facilitate managing your finances. The app offers insights on spending patterns, access to a total balance across all linked accounts and a view of the balance available. Google Photos may also be linked to search transactions.

7. Get better fraud protections

Digital wallets may require verification of identity with a PIN, pattern, fingerprint or other option before being able to make a payment. It’s an added layer of security that’s not present on a physical wallet. If someone took your debit or credit cards, they could potentially use the information on them to go on a shopping spree.

A digital wallet offers greater protection against fraudulent purchases. Digital wallets use a unique number and transaction code for purchases. When you pay in a store, the card number isn’t shared with the merchant. Through a process called tokenization, the digital wallet requests a token to represent the card and the result is a unique identification number associated that is used to make the payment.

8. Keep others’ germs at bay

With a digital wallet, you don’t have to hand a card to different merchants who have handled cash and cards prior to the transaction. There’s no need to touch the payment terminal unless you’re required to input a PIN for a debit card. Simply open the digital wallet, select a card and hold the back of the phone close to the payment reader to pay.

Melissa Lambarena writes for NerdWallet. Email: Twitter: @LissaLambarena.

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