Holding cash is too expensive!
Mar 10 '00 (Updated Jul 17 '00)
OBTAINING AND HOLDING CASH IS VERY EXPENSIVE!
When you consider the loss of interest caused by withdrawing cash, then tack on any fees associated with using another bank's ATM to complete your withdrawal, the cost of holding cash become very high. Also, cash easily transferable, making misplaced cash a tempting theft target. If you lose you wallet with only several credit cards in it, you might actually get it all back (assuming the wallet is recovered). However, a lost wallet full of cash will almost never be found with the cash still in it. With the recoverability of lost/misplaced cash being so low, cash becomes even more expensive to hold. Note: using credit and paying the balance off each month is massively cheaper than carrying cash! You'll accumulate interest instead of losing it, credit is less liquid to thieves, and no fees (DON'T EVER USE A CREDIT CARD TO GET CASH - VERY EXPENSIVE).
Banks charge fees at their ATM's to recapture fees they incur transacting the business of other bank's customers. Whether or not banks should charge the fees really seems to be a regulatory/legislative issue. Their cost recapture is similar to how cable TV companies "pass on" to customers "franchise fees" which are charged to the cable companies by the local municipal governments. While these costs may seem unreasonable, they are legal and more closely tied to where the costs are actually incurred than they would be without the "pass through". If bank's stopped charging fees to other bank's customers when transacting at their ATMs, the bank owning the ATM would begin charging a (higher) fee to their own customers (to recapture their costs) for having a checking account or similar service. Cable TV would also be the same. If cable companies stopped passing through their franchise fees, they would simply raise the cable TV prices to compensate.
One of the hidden costs of "Online" banking is that most online banks don't have any ATMs at all, making cash withdrawal potentially very expensive. However, many online banks (like X.com) will reimburse customer's monthly ATM fee costs up to a certain amount (X.com = $6.00/mo.). Because the online banking industry is so new and their new customers will never be cheaper to get, many online banks will eat these ATM charges for now. There will be some day in the "not to distant" future when ATM fees will make their way (in one form or another) into the fees schedule of online banks too.
As a general rule try to hold as little cash a possible. Make larger less frequent withdrawals from the ATM (especially if you pay fees). And remember, credit is much cheaper than holding cash if you pay off the balance monthly (which you should).
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