Most of us don’t think twice about using direct deposit for our paychecks or swinging by the ATM to grab cash when we’re running low. But for the nearly 16 million US households that are currently “unbanked,” those things are impossible.
If you’re not familiar with the phrase, a person or household is considered “unbanked” when they are not served by a bank or other financial institution in any capacity. Additionally, 16 percent of Americans are considered “underbanked.” This means they have a traditional bank account, but also use alternative financial services, such as payday loans or car title loans. Let’s take a look at how it happens, the downsides of being unbanked or underbanked, and some potential solutions.
How it Happens
Some people choose to be unbanked because they don’t trust traditional financial institutions. Others opt for it because they think being unbanked will help keep creditors or collection agencies at bay (it won’t). However, the majority of those who are unbanked find themselves in that situation as a result of past financial mistakes. At a certain point, banks see these customers as a bad risk, and opt not to do business with them.
It Doesn’t Stop Collection Efforts
Some consumers mistakenly believe that being unbanked makes it impossible for creditors and collection agencies to pursue repayment. In reality, that’s not the case at all. In fact, what is likely to happen is creditors being even more aggressive, and using wage garnishment to collect unpaid debts. If you are intentionally unbanked due to credit issues, we have a better option. Credit Counseling and possibly, a Debt Management Plan, can help you address your debt and find a realistic repayment solution.
It Makes Life More Complicated
Being unbanked means things like cashing checks and paying bills are costly and time-consuming. Those who are unbanked often must rely on check cashing services to cash paychecks because they don’t have direct deposit. They also have to pay bills using money orders, which adds time and expense to the process. And not having a debit card or checks means having to carry cash for everyday expenses such as gas and groceries. If you lose cash or someone steals it, there’s no way to get it back. Pre-paid debit cards are an option, but they may carry high usage fees and can be hard to manage.
Explore Options to Get Back on Track
Once unbanked, it can be challenging to get back into the financial mainstream, but it’s worth the effort. Some options for doing so include:
- Second Chance Checking Accounts—Some banks and credit unions offer these accounts as a way to return to traditional banking. They often lack the perks and features of other checking accounts, but if a consumer manages a second chance account responsibly, they may have the opportunity to upgrade to a traditional account within a year.
- Working With a Credit Union or Local Bank —Credit unions and local banks are often willing to work one-on-one with customers. In addition to second chance checking accounts, these institutions may offer small personal loans. These can help consumers re-establish financial responsibility.
FAQs
Being unbanked means things like cashing checks and paying bills are costly and time-consuming. Those who are unbanked often must rely on check cashing services to cash paychecks because they don't have direct deposit. They also have to pay bills using money orders, which adds time and expense to the process.
What are the downsides of being unbanked? ›
Problems With Being Unbanked
High fees when using alternative financial services, such as check cashing services or prepaid debit cards. Longer waiting periods to access funds. Limited access to credit cards, which generally require a bank account. Limited savings opportunities.
What are some of the major downsides of being unbanked Quizlet? ›
Name 3 downsides of being unbanked.
- Can't make cashless purchase.
- Lack of access to credit.
- Loss of time doing bills.
A lack of money, trust, and privacy concerns are three main reasons why people in the U.S. are unbanked. Governments and other organizations have initiated several programs to “bank” the unbanked, such as the Federal Deposit Insurance Corp.'s (FDIC's) Money Smart program.
What are some difficulties unbanked individuals face? ›
Lack of savings for emergencies: Without bank accounts, it's difficult for individuals to save money securely, leaving them vulnerable in emergencies. Difficulty paying bills on time: Managing bills can be challenging without access to online banking or direct debits.
What are the consequences and costs of being unbanked? ›
Going without a bank account may not seem like a big deal, but being unbanked can be challenging. Basic tasks like cashing a check can be expensive, and it can be harder to qualify for loans or other forms of credit.
What does it mean to be unbanked poor? ›
As online transactions become ubiquitous, life has become more challenging for those who rely on cash: the unbanked, those who don't or can't access banking and financial services, and the underbanked, those who don't make full use of such services.
What is the main disadvantage of bank account? ›
Fees – many checking accounts come with additional costs such as maintenance fees, ATM withdrawal fees and transaction fees. Overdraft fees – overdraft fees, when the balance goes below zero, are determined by each individual bank, making them difficult to understand and often very expensive.
Who is most likely to be unbanked? ›
Along racial lines, Black (14%) and Hispanic (11%) adults were most likely to be unbanked, compared to 4% of white and Asian adults.
What are the disadvantages of non bank? ›
The Disadvantages of Non Bank Lenders
- Some borrowers may be subject to higher interest rates compared to traditional banks. ...
- There is a troubling lack of regulation compared to traditional banks. ...
- Non bank lenders often have a limited range of financial products compared to traditional banks.
Being unbanked means things like cashing checks and paying bills are costly and time-consuming. Those who are unbanked often must rely on check cashing services to cash paychecks because they don't have direct deposit.
What are the characteristics of unbanked? ›
Unbanked describes people who do not use the services of any banking institution, and underbanked describes those who have insufficient access to financial services. Everyone can benefit from being banked, and the right bank account doesn't need to cost you any money.
What of people are unbanked? ›
The Federal Reserve found that in the U.S., 13% of adults are underbanked as of 2021, meaning they have a bank account but regularly use alternative financial services, and 5% are unbanked meaning they have no bank account at all. The unbanked population is made up of around 13 million people in the U.S.
What are two of the major downsides of being unbanked? ›
You'll pay fees for alternative services such as check cashing and prepaid debit cards. Not having a bank-issued debit card can mean you'll need to carry cash, which might not be recovered if lost or stolen. You're missing out on a high-yield savings account, which currently earns a yield that's outpacing inflation.
What to do if you are unbanked? ›
People who are unbanked may rely on alternative financial services such as check cashing, money orders, and payday loans. On the other hand, to be underbanked means you have a bank account but still use alternative financial services to meet some needs.
Can there be any difficulties or disadvantages in keeping money in bank? ›
What are the disadvantages of saving money in the bank? Inflation will eat up your interest income also you might have negative returns in if inflation is higher.
What are the dangers of lacking money? ›
Money problems can affect your social life and relationships. You might feel lonely or isolated, or like you can't afford to do the things you want to.
