I paid my rent for the month online as I always do, and since my roommate owed me half, she dug out her checkbook from the bottom of her desk drawer. She grabbed a pen, and then looked at me blankly. “How do I do this again?” she asked, laughing.
We’re slowly forgetting how to write and cash checks, and the once-crucial habit of balancing a checkbook is practically becoming a thing of the past. With the increasing popularity of credit cards, online bill payment, and PayPal, will paper checks soon become obsolete?
Maybe. I rarely use checks, so when I finally used the last one I had, I was surprised to find that my bank was going to charge me $25 for a single box. I found that Walmart, Sam’s Club, and Costco have more reasonable check prices at $7 to $10 a box (shipping included), but then I wondered if I even needed to order new ones at all. I pay all my bills online, transfer money to friends with PayPal if I owe them any money, and use my credit card for just about everything else. In the rare case that I need to pay in cash or check, I just run to the ATM.
Statistics of Personal Check Usage
Statistics show that check usage has been declining dramatically since the turn of the 21st century. Fiserv‘s 2010 Consumer Billing and Payment Trends Survey found that online banking, bill payment, and e-checks have been growing steadily since 2001. Over the past decade, online bill payment has increased 800% while paper check usage has declined from 61% of all payments in 2000 to just 26% in 2010.
Just because the personal checkbook is becoming less popular, doesn’t mean it isn’t useful in certain situations, however. Consider the pros and cons of personal checks and review your paperless options.
Advantages of Checks
Some people simply like their money to be physical paper, whether that’s cash or a check. When Social Security payments went paperless-only on May 1, 2011, senior citizens lamented and protested the change. Cashing or depositing the check is still a part of many Americans’ daily routines, and concerns about money being “out of sight, out of mind” outweighed the convenience of direct deposit. Though the change saves the federal government $120 million a year, according to the New York Times, a great deal of people are just used to paper money and checks.
For people who prefer paper, checks are far safer than cash money. Sending a stack of $20 bills in the mail is risky, but if your check gets lost, you can easily cancel the check and replace it with another. Your money is safe and the recipient still gets paid.
Moreover, if you make a payment and later realize you overpaid or need to stop the payment for some reason, you can have your bank put a “stop” on the check to prevent it from being cashed. You also create a reliable paper trail; checks make it easier to keep records and prove that you’ve provided payment should a dispute arise.
Since they’re the most secure option, I find that checks also make the best gifts. It’s not often that I give a gift of straight cash, but when I do, I want the recipient to have the flexibility to use the cash anywhere, anytime.
While some bank gift cards work well, checks are generally more useful than gift cards to a specific store. My friends or family members cash the check, and do whatever they want. They’re not tied to a particular store or an expiration date. Further, I avoid the risk of cash getting lost forever if it gets misplaced in the flurry of wrapping paper. Gift cards are sometimes replaceable, but it’s far easier to write a new check.
Disadvantages of Checks
While checks have some security advantages over cash and credit cards, there is one risk that checks cannot escape: fraud. According to the Fraud Report by the American Banker’s Association, check fraud accounts for over $1 billion in losses in just one year.
Though banks have improved some security measures, checks have been around long enough for counterfeiters and forgers to get very good at their “craft.” You might expect criminals to go after companies that might not take note of a few small checks here and there, but 74% of these cases victimized individual checking accounts.
Checks take time to fill out, and aren’t as convenient as swiping a credit card. They can also take several days to go through, so you don’t have access to the money in your account until the check is deposited. If you’re prone to impulse buys, taking the time to write out a check might actually be helpful, because you’ll be more aware of how you’re spending your money.
Checks are about as good as paper currency, and you used to be able to use them at just about any retail store, especially large chains. Many businesses, however, have fallen victim to phony checks and scams too many times. Combine the danger of fraud with the limited number of people using checks in general, and you won’t be surprised to find that many stores have stopped accepting personal checks. You definitely can’t rely on your personal checks as a primary form of payment, so you may want to avoid the hassle of carrying them in the first place.
Though checks are more secure than cash and easier to replace than gift cards, the trade-off is that they require more effort – at least for the recipient. Of course, no one should complain when they’re on the receiving end of a cash transaction, but the hassle of visiting a bank or ATM bothers plenty of people. With PayPal and other online options making peer-to-peer money transfers so simple to complete from home, an old-fashioned method can put a damper on your generosity.
Paperless Payment Options
As personal finance transitions from traditional brick-and-mortar banks to the online world, you have more and more options for paperless payments, and they’re getting even safer and simpler. Three primary methods of paperless payment are fueling the transition:
“Paper or plastic” used to be a dilemma at the grocery store, but now it applies to bill payment as well. Now that small businesses can use inexpensive card readers for iPhones, iPads, iPods, or Android phones, card payment has become even more accessible, driving down prices for consumers.
Since credit card companies usually charge businesses a percentage of their total sale (usually 1.5% to 3%), retailers usually build that fee into their prices, passing the cost on to consumers. These new payment options reduce expenses for stores, and for a competitive edge, most stores share the savings with you.
2. Online Billing and Banking
Most banks that offer online banking also offer online automatic bill payment, so you can pay your credit card, rent or mortgage, and other one-time or recurring bills directly from your bank account. This feature is convenient, fast, and reliable. When you monitor your accounts online, you can avoid overdraft fees, service charges, and other bank fees. Online bill payment also includes e-checking, so you can fill out the form online and your bank will mail a check to an individual or a business.
If you’re transferring money to a friend, PayPal is the number one free option. For business transactions, they take a smaller cut of sales than credit card companies do. It’s faster than e-checks and sends an email to both parties to confirm the transaction. This is my favorite way to pay friends or purchase items online, because it’s quick and easy, and I can easily view my account balances online.
Overall, I don’t miss my personal checkbook. Going check-less may not work for everyone, but it suits my lifestyle and spending patterns. Ultimately, I don’t know if paperless options will make checks completely obsolete in the near future, but check use is steadily declining. Your options are opening up, and you can ease into new technology at your own pace.
What’s your preference? Do you go for paperless payment options, or are you still using personal checks?
Hope Nardini writes about frugal travel and personal finance topics and trends on Money Crashers, a financial blog and resource site.