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FDIC Reports Growing Number of Unbanked Households: Should Low-income Households Open A Checking Account?

Sept. 14, 2012
Banking, Banking News
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NerdWallet found that for households with incomes at the poverty line, using check-cashing services costs more than three and a half times as much as having a bank account, and prepaid debit cards cost more than two and a half times as much as having a bank account.

The FDIC released a national survey of unbanked and underbanked households on September 12, 2012. The findings showed an increase in unbanked and underbanked households since 2011:


  • The amount of unbanked households has increased by .6%, or 821,000 households since 2011
  • 8.2% of US households are unbanked—this equals 1 in 12 households or 10 million adults
  • An additional 20.1% of US households are underbanked—this equals 1 in 5 households or 51 million adults
  • 25% of households have used at least one alternative financial service (AFS), i.e. check cashing services or non-bank remittances, in the past year, and almost 10% have used two or more alternative financial products
  • Non-Asian minorities, lower-income households, young households, and unemployed households are more likely to be unbanked than others

Of these unbanked households, many tend to use AFS and prepaid debit cards

  • 29.5% rely only on cash and do not use any AFS providers; however, unbanked households overall use AFS more than underbanked and banked households.
  • 17.8% of unbanked households use prepaid debit cards

How much do check-cashing services and prepaid debit cards cost?

  • Check-cashing services have a fee cap mandated by the state. The state of New York set the maximum fee that licensed check cashers may charge at 1.91% of the check’s face value.
  • Prepaid debit cards levy fees for a whole host of transgression that checking accounts do not charge for: having your card declined, opening an account, calling customer service, loading money, etc.
  • Prepaid debit cards cost $59 (Chase Liquid) to $502.80 (NetSpend Prepaid) per year, with an average cost of $297.51 per year in fees plus a $8.35 activation fee, totaling $305.86 per year.

Is it cheaper for low-income households to use check-cashing services and prepaid debit cards than to get a bank account?

Generally, it is not cheaper to use AFS services rather than open a checking account.

For a household choosing between using a check-cashing service to cash $22,350 per year (the 2011 poverty threshold for a family of four) in New York state, it is clear that a checking account is often the cheapest option, even when the services are compared to a high-fee checking account at a big bank.

Check-cashing service Prepaid debit card Checking account at a big bank
Average Yearly Cost $426.89 $305.86 $117.00

Comedian Louis C.K. has a sketch where he describes a bank calling him to tell him his balance is low and that they will be charging him a $15 monthly service fee for being under the minimum balance requirement; he quips, “They charged me $15. That’s how much it costs to only have $20.” C.K. makes a good point that banks charge customers for not meeting minimum balance requirements, and this can discourage low-income households from opening checking accounts.

Free checking at big banks is available, but mainly to those who can stay above a minimum balance requirement or have their paycheck direct deposited. For those who cannot meet these requirements, they can find a free or low-fee account at a credit union, community bank or internet bank. For help finding a free checking account, check out NerdWallet’s Roadmap to Free Checking and our free checking account search tool.

For more information on financial exclusion and the unbanked, check out the expert opinion of an assistant professor of economics at Pepperdine University.