How do you deposit cash when you only have an online checking account?

I’ve been thinking a lot about incentives recently and in particular how incentives impact our financial wellbeing. When I look at the growing inequality between the rich and the poor I see the statistics but only recently did I get a taste of what it’s like to be underbanked. I should preface this article by saying that I am extremely privileged to live in New York City, and have relationships with 13 different financial institutions. In spite of that, I still faced a problem that many in the US who are less privileged still face.

How to deposit cash with only an online bank account?

Financial Institution Incentives

At a high level, financial institutions are incentivized to make money. Their primary aim is to increase the value of the business. Sometimes this aim aligns with what is in the best interest of the customers, but sometimes it doesn’t. Even when incentives are aligned, not all customers benefit equally.

Bank Fees

Banks charge a litany of fees for various services, which they have every right to do. That being said, it tends to be the least wealthy customers who are disproportionately affected by fees for overdrafts or account maintenance, for example. The bank charges these fees to recoup the costs associated with running their business. Additionally, banks want their wealthier customers to use more services. This is commonly referred to as owning more “wallet share”. If a customer doesn’t have enough money or transaction volume then the bank charges them extra fees to justify having them as a customer.

A customer who doesn’t have enough money to maintain the required minimum balance is incentivized not to use the bank. A customer with no cash assets costs too much money to warrant holding a “free checking account.”

This leads to more underbanked individuals, who are predominantly found in poorer communities.

The incentives are not aligned for the banks to support those in most need of access to cheap and free services.

Aren’t Neobanks and FinTech apps changing things?

There are some innovations in digital banking that are objectively valuable to consumers. Higher yield savings accounts, faster transfers between accounts, easier sign-up for services, no fees, and a handful of other benefits.

Personally, I use these tools myself and am extremely loyal to a handful of them.

For me, the switch came two to three years ago when I closed the last of my checking and saving accounts with the big banks to avoid fees. As a startup founder, I knew I wanted to shift my money into higher interest-bearing accounts and that I would no longer qualify for the waived fees through the traditional direct deposit, minimum balances required, and other qualifying activities.

I’ve been very happy with my decision to switch to online exclusive accounts. Only recently have I run into issues with my exclusively online banks: cash.

I needed to deposit cash and there were no options to do so with the two online/investment banks I have checking accounts with.

So how common is this issue?

Zooming out and looking at the underbanked as a group, many of those folks are paid in cash. They work for small local businesses that deal in cash, are side-hustlers, or simply don’t have a direct deposit option. Based on this fact along the underbanked are already at a disadvantage because their options are limited.

I was recently paid in cash for the first time in many years, and found myself face to face with a reality that many are all too familiar with: I couldn’t believe how hard it was to deposit cash.

So what’s the solution?

As you may have surmised from reading up to this point, I hate bank fees! As such, I’m not about to pay to wire my own money or use other similar services for a fee. I’d rather sit on more cash than I’m comfortable with and let inflation eat away at my money than pay a fee to access my own money in a digital form.

Borderline irrational perhaps, but 100% within my principles.

In search of other options, I found plenty of bitcoin ATMs in NYC that I could use cash to buy crypto. It’s easier to buy crypto with cash than it is to deposit cash into an online bank. But I didn’t want more cryptocurrency nor have I vetted the security of cryptocurrency ATMs.

I started looking for online banks that had brick-and-mortar locations with comparable yields and found a couple of solutions. But the locations were not near me and I hated the idea of opening a new account for this one transaction.

How did I deposit the cash?

Ultimately, I asked a friend to deposit the cash for me and he initiated a transfer through his bank. But again that was not an ideal solution either, as it requires having high trust in someone else.

Conclusion

Until the incentives are aligned for either traditional banks or online banks to provide access to free cash deposits and free accounts, many in the US will remain unbanked, underbanked, or hit with high fees.