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Unbanked Households in the United States: A Brief Overview

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A bank account is an essential tool for financial security. Without one, you’ll pay more to access your money and make payments. Your funds will be vulnerable to theft, fire, flood and loss. You won’t be able to earn interest on your savings, and you’ll have a harder time building a good credit history. Despite this, an estimated 7.7 percent of U.S. households are unbanked, according to an FDIC sponsored supplement to the U.S. Census Bureau’s Current Population Survey (2009). That’s approximately 17 million adults who don’t have a checking or savings account.

What’s even more disturbing than the number of people without a bank account is that certain groups of people are disproportionately less likely to have one. This suggests that the bank system is alienating the most financially vulnerable segments of the population. Many major banks have been hiking fees, but there are good alternatives out there. Many small banks and credit unions provide low-cost loans and accounts to underserved populations. However, they tend to lack a strong advertising presence, and far too many people are unaware that these options exist. They may also live in rural areas with limited banking options.

Low-income and minority adults less likely to have bank accounts

Poverty is by far the biggest common factor of the unbanked population. 20 percent of low-income households, defined as those that make less than $30,000 a year, don’t have a bank account. Furthermore, these households account for 71 percent of all unbanked households. There is also great inequity when you look at unbanked statistics by ethnic background and geographic location. Most of the unbanked are minorities: 21.7 percent of blacks, 19.3 percent of Hispanics, and 15.6 percent of Native Americans and Alaskans are unbanked. Whites and Asians are far less likely to be unbanked, at rates of 3.5 percent and 3.3 percent, respectively. A disproportionate number of unbanked adults also live in the South. Mississippi has the highest number of unbanked households at 16.4 percent, while Utah has the lowest at 1.7 percent.

Half the unbanked have left banks

Approximately half the people who reported themselves unbanked also reported having a bank account in the past (49 percent), as opposed to people who have never had an account. This suggests, as many have suspected, that increasing bank fees really are driving away low-income customers. Sure enough, that’s the most common reason people reported leaving banks: not being able to afford them. Not having enough money to need an account was the most popular reason (37.1 percent). Other common reasons were not writing enough checks to make it worthwhile (17.9%), not being able to meet the high minimum balance requirement (12.7%), or just not wanting one (12.4%). 9.1 percent didn’t feel comfortable or welcome at banks, and 6.9 felt they encountered language barriers there.

The high price of being under banked

Some people believe they can save money by avoiding banks. Many of the unbanked rely on cash, but the FDIC reports that 66 percent of unbanked households also use alternative financial services like pawn shops, payday loans and check cashing. 12 percent of unbanked households rely on prepaid cards, and 3.1 percent have a payroll card.

All of these services have high fees. For example, American workers spend approximately $4 billion on check cashing fees each year. Check cashing fees may not seem like much, especially if you have to pay overdraft charges or a monthly fee for a checking account. However, if you’re worried about bank fees, you’re better off switching to a financial institution that caters to low-income clients. In addition to keeping your money safe, these banks and credit unions provide a unique opportunity for financial growth that the poorest among us desperately need. Everyone should have the opportunity to earn interest, build credit, apply for loans and work toward financial security, regardless of where they live, who they are or how much they make.