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The U.S. financial system has a massive reach – more than 5,000 banks and more than 5,100 credit unions are scattered across the country. However, plenty of Americans never step inside their branches, download their apps or deposit money in their accounts. They’re known as the unbanked, and the most recent numbers from the Federal Deposit Insurance Corporation (FDIC) show that 5.4 percent of U.S. households – approximately 7.1 million – are part of the unbanked population.
In addition to those who do not have a checking or savings account at a traditional bank or credit union, there are also underbanked consumers – those who have bank accounts but step outside the banking industry for needs like money orders, check cashing and bill payment services. In 2019, more than 17 percent of households were underbanked.
If you lack a strong relationship with a bank, there are ways for you to join the traditional financial system. Here’s a look at six of the most common reasons to be unbanked and what you should do to improve your personal financial health.
1. Your past financial mistakes put you on a no-account list
Do you have a history of unpaid overdraft fees, bounced checks or other mistakes that might be deemed risky to a bank? If so, your name might have a red flag that limits your options.
“If you’re unbanked, you may have a bad ChexSystems report due to some financial setbacks or stumbles,” says Bruce McClary, senior vice president of communications at the National Foundation for Credit Counseling.
What you should do: Explore options designed to give you a second chance
Some banks are designing products specifically for anyone with a poor credit history. Chime and Wells Fargo are two of the most well-recognized national names that offer accounts for anyone who has struggled to open a traditional checking account, but it’s also important to look closer to home and compare options at smaller institutions in your community.
“There are community banks and credit unions that have creative programs to provide a pathway toward restoring your relationship or creating a new one with a bank or a credit union,” McClary says.
2. You don’t trust banks
Some banks have made headlines for selling customers products they don’t need, creating fake accounts for customers and a range of other negative activities in the name of earning a profit. If those behaviors have made you skeptical of banks, you’re not alone: 36 percent of unbanked consumers in the FDIC’s latest research say that they don’t trust banks.
What you should do: Trust the system
“If you do not completely trust banks, you can trust the systems in place that hold banks accountable for their actions,” McClary says. “With the banking industry, there are a lot of regulations and rules. There are consequences if a bank breaks those rules that protect consumers quite well.
“You can work with a bank knowing that your interests are protected,” he adds. “You have recourse if a bank breaks the rules and causes financial harm.”
3. You’re worried about minimum balance requirements
Many checking accounts come with a $0 price tag and an asterisk next to it: Maintain a daily minimum balance to qualify for that zero. Nearly 50 percent of unbanked consumers say that they don’t have enough cash to meet that minimum balance.
What you should do: Look for a Bank On-certified account
More than 40 banks offer accounts that are part of Bank On, an initiative designed to help more people open traditional bank accounts. Bank On standards do not permit recurring minimum balance requirements or overdraft fees.
“For anyone who feels they don’t have enough money, these standards should take that worry off the table,” says Naomi Camper, chief policy officer at the American Bankers Association.
“There are very clear parameters around the accounts to avoid any surprises about costs,” she adds.
To find a Bank On-certified institution near you, check out the map of more than 24,000 branches around the country.
4. You’re aiming to avoid fees
Paying money to park your money can be frustrating. More than 34 percent of unbanked consumers cite high bank fees as a reason for steering clear of a bank account.
What you should do: Calculate the fees you’re paying for alternative financial services
How much did you pay the last time you cashed a check? Now, multiply that number by all the times you need to cash a check throughout the year.
“There is a perception that it is too expensive to be banked,” Camper says. “I would argue that it is too expensive to be unbanked.”
If you don’t have a bank account, McClary says you’re most likely to pay high fees for a prepaid card or a check cashing service.
“Not only will you pay more, but your money will not be as safe due to a lack of FDIC protection,” he says.
5. You’re trying to avoid debt collectors
If someone has been chasing you down to pay up on past bills, you may be trying to stay off the grid by keeping your name (and your money) away from the banking system.
What you should do: Stop running, and start looking for help with your finances (you might even find it at a bank)
In addition to basic products like checking and savings accounts, McClary says that many banks and credit unions offer valuable assistance if you find yourself in a precarious position.
“Some of these institutions add more value for someone facing tough financial decisions or obstacles while managing your debt,” McClary says. “There are many banks and credit unions that work closely with the NFCC to create a direct pipeline to non-profit credit counselors.”
6. You’re young
If you’re young, you might not see the value in dealing with a traditional bank. In fact, some estimates show that 33 percent of Millennials believe they won’t need a bank account within the next five years.
What you should do: Open a bank account today, so you can get ready for tomorrow
As you grow up, you’re going to need a proven track record of responsible banking behavior in order to do grown-up activities like buying a car, buying a house and building a retirement cushion.
“Having a bank account is the ground floor of financial health,” McClary says. “The banking system is the entry point to higher-yield savings products, affordable loans and affordable lines of credit.”