At credit.org, we’ve worked for years to help a growing number of unbanked Americans. Unbanked people have no checking or savings accounts. Being unbanked leads to extra expenses and difficulties that make managing one’s personal finances riskier; thankfully there are new options to help people without access to traditional banking.
Why Some Americans Forego Bank Accounts
According to the FDIC, a quarter of American households are underbanked or unbanked. Underbanked people may have some kind of bank account, but use non-bank financial services to get by.
Why do so many Americans go without traditional banking? More than half, according to the FDIC study, believe they don’t have enough money to keep in an account. A third of under- and unbanked households simply don’t trust banks. Nine-percent cite a lack of access—bank branches are in inconvenient locations and/or have too limited hours for them to bank in traditional ways.
Downsides to Lack of Banking
Extra Fees to Access Funds
Most people without bank accounts may feel they don’t have enough money to keep a bank account, but going unbanked is expensive. Every time they have to cash checks, the people without a traditional bank account must pay steep fees, and they must pay for money orders every time they need to pay a bill. Often any access to credit card transactions (like for online purchases) means buying a prepaid card, which comes with its own fees, which are typically costlier than checking accounts.
Inconvenience and Time Consumption
There are also second-order costs, like time. Having a bank account means access to speed and convenience that people without banking accounts can’t access. Things like automatic bill pay, online account management and balance transfers save consumers time and money.
Less Safety and Security
Unbanked people lose the security offered by banks. When all of the money you have is kept in cash instead of in a bank, you’re at greater risk of being wiped out by theft or disaster. It hurts to lose even a small amount of money if it’s all the money you have.
Lack of Interest-building Savings
Unbanked people also can’t easily build an emergency fund to get through disasters, or earn interest on the money they save. When you factor in the cost of inflation, that means even unbanked people who manage to save end up losing money year after year.
Inability to Build Credit
Access to credit is also an issue we’re passionate about, and unbanked people have a harder time building a positive credit score. Having a bank account sets you up for options like a secured credit card that can help you establish new credit.
So many aspects of one’s financial life flow from having a bank account that it’s critical to overcome this deficit. We’re always looking for more options to help people gain access to banking as a foundation for better personal finances.
New Options for the Unbanked
In response to this serious issue, the Cities for Financial Empowerment (CFE) fund created the Bank On coalition. The coalitions are locally led, and partner public officials, government agencies at the local, state and federal level, and community organizations to improve the financial stability of under- and unbanked individuals and families.
This coalition has created a set of standards to give more people access to low-cost banking services. Among their standards are:
- Minimum opening deposit no higher than $25
- Monthly fees waived or capped at $5
- No overdraft fees
- Free online bill pay
- ATM access
These kinds of standards help address the major concerns unbanked people have about the cost of financial services, and give them access to a transaction account to avoid check cashing fees, purchasing money orders, or needing pre-paid credit cards.
New technology allows credit unions and banks to offer these kinds of low-cost accounts without risk; a “checking” account might not offer access to check-writing at all, but the account holder can use a debit card or online transactions to get all of the benefits of checking without the risk of incurring overdraft or bounced check fees.
That leaves the question of access. The Bank On coalition continues to grow, adding new branches all over the country. They offer a coalition map that lets consumers all over the country know what branches are available near them. And there are more branches being added all the time.
It’s hoped that as more unbanked people gain access to low-cost accounts through a nearby Bank On coalition member, they will gain access to lending and other financial services. Building a better personal financial portfolio begins with having access to banking.
For those who are working to build better personal finances, we’re here to help, with services like credit report review and debt coaching. As a nonprofit organization, you can count on our advice to be confidential and personalized to address your situation.