Q: With interest on savings accounts near zero and checking account fees going up all the time, would I be better off with an alternative like bitcoins? I see that more and more places are accepting them for payments.
A: Many people share your frustration with traditional banking, but that does not mean that Bitcoin is a good alternative.
Here are some of the things you would be giving up if you traded your bank accounts for bitcoins:
- FDIC insurance. You can argue whether Bitcoin is the wave of the future or a speculative fad, but you really cannot argue that bitcoins and deposit accounts resemble one another in any meaningful way. Deposit accounts at FDIC-member institutions are guaranteed up to $250,000 -- a level of security you cannot get with alternative currency investments.
- Regular interest. Sure, interest rates on savings accounts and other deposits are frustratingly low, but at least they offer interest. Bitcoin speculators are betting that the value of bitcoins will rise as more and more people buy into the concept. Remember though, that's also the principle by which people hope to make money in Ponzi schemes.
- Stability. It is one thing to not pay interest, but another crucial difference between a deposit account and Bitcoin is the wild swings in the value of the Bitcoin. You may not like checking account fees, but how would you feel if your balance was worth $500 one month and $300 the next, simply because the value of the Bitcoin changed?
- Widespread acceptance. You mention seeing more and more places accepting bitcoins, and it does seem that every week or so there is a news article about a retailer agreeing to accept them as payment. However, the fact that this is considered news means the Bitcoin is still far from enjoying universal acceptance.
Ultimately, it is difficult to view an investment in bitcoins as anything other than speculative, because procedures for managing the currency are still being formulated -- as are the regulations that govern it. Because New York State is home to many Bitcoin-related firms, it recently proposed the first wave of Bitcoin-related regulation. However, if regulation evolves on a state-by-state rather than a national basis, it could put a damper on the free exchange of this alternative currency.
If you find your interest rates too low and your checking account fees too high, take out your frustrations on your current bank -- not on all banks. Shop around and chances are that you can find both free checking and a higher savings account rate. After all, if security and liquidity are what you want, you probably should not be a Bitcoin pioneer. Remember, pioneers are often the ones with the arrows in their backs.
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