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Why Some Households Don’t Use Banks — and Why They Should Reconsider
Tony Armstrong leads the banking team at NerdWallet. He has covered personal finance for nearly a decade. Tony began his NerdWallet career as a writer and worked his way up to assistant assigning editor and then to lead assigning editor. His writing has been featured by the Los Angeles Times, MarketWatch, Mashable, Nasdaq.com, USA Today and VentureBeat. Tony lives in Minneapolis, Minnesota.
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Banks and credit unions offer many services that save people time and money, but these conveniences elude 8.6 million unbanked households in the United States. Instead, these families rely on alternative financial service providers for basic transactions such as check cashing, which often come with hefty fees.
Unbanked households, which the Federal Deposit Insurance Corp. defines as those that don’t have an account at an insured institution, also miss out on helpful tools and services such as savings accounts, secured credit cards and deposit insurance.
Whether they don't have a bank account by choice or circumstance, these people could save money and time by joining, or rejoining, the banking ecosystem. The reasons for not having an account vary, but each can be overcome.
They think they don’t have enough money
The main reason people don’t belong to a bank is that they think they don’t have enough money to maintain an account or meet a minimum balance requirement, according to an FDIC study.
But it doesn’t always take a certain dollar amount to qualify for a bank account; many of NerdWallet’s favorite checking accounts don’t have initial deposit requirements. They also don’t have monthly maintenance charges, which means customers don’t have to keep their balances above a certain amount to avoid a fee.
4.60%SoFi members with Direct Deposit or $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either Direct Deposit or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
4.80%1.00% APY for <$10k balance; 4.00% APY for $10k to <$50k balance; 4.50% APY for $50k to <$250k; 4.80% APY for $250k+ balance
Min. balance for APY
$250,000
These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.
These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.
5.50%*Current promotional rate; annual percentage yield (variable) is 5.50% as of 4/2/24, plus a .50% boost available as a special offer with qualifying deposit. Terms apply; if the base APY increases or decreases, you’ll get the .75% boost on the updated rate. Cash Reserve is only available to clients of Betterment LLC, which is not a bank; cash transfers to program banks conducted through clients’ brokerage accounts at Betterment Securities.
Min. balance for APY
$0
CDs (certificates of deposit) are a type of savings account with a fixed rate and term, and usually have higher interest rates than regular savings accounts.
CDs (certificates of deposit) are a type of savings account with a fixed rate and term, and usually have higher interest rates than regular savings accounts.
5.30%The annual percentage yield is effective as of Wednesday, July 24, 2024. APY is a fixed rate and a $1,000 minimum balance is required. Bask Bank will pay this rate and APY through your CD maturity date. Fees could reduce the earnings on your account, and an early withdrawal penalty may be imposed for early withdrawal. If your CD is not funded with at least $1,000 within 10 business days after the date the account is opened, it will automatically be closed. Read the full terms here: https://www.baskbank.com/terms-and-disclosures.pdf
Just as a retirement account is beneficial even if you don’t add thousands of dollars to it each month, so too is a bank account useful, even if it isn’t overflowing with cash. The account also provides access to mobile check deposit services, online bill pay and a safe place to store your money.
When less-than-stellar customer service is already testing your patience, finding out that one of the largest banks in the country opened millions of fake accounts in their customers’ names might leave you on the brink of ditching the traditional banking system altogether. For some consumers, it’s enough to keep them from joining it in the first place.
Despite the headlines, your money is safer in a bank account than under your mattress. Most financial institutions are federally insured, meaning that deposits of up to $250,000 are backed by the U.S. government. What’s more, banks dedicate plenty of resources to thwarting hackers and mitigating other online threats.
They think fees are too high or unpredictable
Costly fees keep some people away from banks — and it’s hard to blame them. If you were to pick a run-of-the-mill bank account that came with a $7.50 monthly fee, you could end up paying about $150 per year once you factor in a couple of $30 overdraft charges.
But there are solutions: free checking and savings accounts. Often, these accounts come from online institutions, which also have lower or no overdraft fees. Before you join a bank or credit union, take a good look at its fee schedule to avoid surprises.
Not having a bank account comes with its own steep costs. Prepaid debit cards, which some people use in place of a checking account, can have fees that total nearly $200 or $500 annually, depending on whether the card comes with direct deposit services, according to a NerdWallet study.
4.60%SoFi members with Direct Deposit or $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either Direct Deposit or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
4.80%1.00% APY for <$10k balance; 4.00% APY for $10k to <$50k balance; 4.50% APY for $50k to <$250k; 4.80% APY for $250k+ balance
Min. balance for APY
$250,000
These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.
These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.
5.50%*Current promotional rate; annual percentage yield (variable) is 5.50% as of 4/2/24, plus a .50% boost available as a special offer with qualifying deposit. Terms apply; if the base APY increases or decreases, you’ll get the .75% boost on the updated rate. Cash Reserve is only available to clients of Betterment LLC, which is not a bank; cash transfers to program banks conducted through clients’ brokerage accounts at Betterment Securities.
Min. balance for APY
$0
CDs (certificates of deposit) are a type of savings account with a fixed rate and term, and usually have higher interest rates than regular savings accounts.
CDs (certificates of deposit) are a type of savings account with a fixed rate and term, and usually have higher interest rates than regular savings accounts.
5.30%The annual percentage yield is effective as of Wednesday, July 24, 2024. APY is a fixed rate and a $1,000 minimum balance is required. Bask Bank will pay this rate and APY through your CD maturity date. Fees could reduce the earnings on your account, and an early withdrawal penalty may be imposed for early withdrawal. If your CD is not funded with at least $1,000 within 10 business days after the date the account is opened, it will automatically be closed. Read the full terms here: https://www.baskbank.com/terms-and-disclosures.pdf
Some people's past banking troubles, such as bounced checks or unpaid fees, keep them from being able to open a standard checking account. That’s where second-chance checking accounts come in handy.
These products may not come with all of the services offered by traditional accounts, but they eliminate the need to go to expensive alternative financial-service providers. Plus, if you use your account responsibly for six months to one year, you might be able to switch to a standard account.
If you don’t have a bank account for one of these reasons, we highly recommend re-evaluating your stance. Banks and credit unions may not be perfect, but they’re far better — and cheaper — than your other options.