What Are Some of the Reasons That People Are Unbanked

Being unbanked means not having a traditional bank account, which can make everyday life more complicated and expensive. According to the FDIC, approximately 8.4 million households in the US are unbanked, with many more underbanked.

High fees for bank services are a major reason people are unbanked. Banks often charge high fees for services like overdrafts, ATM usage, and check cashing, which can be a significant burden for those living on a tight budget.

For many, a lack of trust in banks is a major factor. A survey by the FDIC found that 27% of unbanked households cited distrust of banks as a reason for not having an account.

Limited access to bank branches is another issue, particularly in rural areas. The FDIC reports that 25% of unbanked households live in areas with limited access to bank branches.

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People are unbanked for a variety of reasons, and some of the most common ones are related to the costs of maintaining a bank account. The 2019 Federal Deposit Insurance Corporation (FDIC) Survey of Household Use of Banking and Financial Services found that households often cite meeting minimum balance requirements and paying fees for overdrafts and other services as reasons for not having a bank account.

Many people struggle with the high fees associated with bank accounts, including overdraft fees. In fact, about one-third of overdraft users close their accounts because of high fees, according to the Pew Center on the States (2012).

Banks' complex and lengthy disclosures can also be a barrier to banking for some individuals. The Pew Health Group found that banks' checking account disclosures have, on average, 111 pages, making it difficult for people to understand the terms and conditions of their accounts.

The cost of maintaining a bank account can be a significant burden for low-income households, who may not have the financial resources to absorb the fees and charges associated with banking.

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Your past financial behavior can put you on a no-account list. This is especially true if you've had a history of unpaid overdraft fees or bounced checks. As a result, you may be blacklisted from opening a new deposit account.

ChexSystems reports can be a major obstacle to getting a new checking account. Consumers with a poor credit history may struggle to open a traditional checking account due to a bad ChexSystems report. However, there are options available for those who have been denied a traditional account.

Some banks offer second-chance accounts designed for people with a poor credit history. Chime and Wells Fargo are two well-known national banks that offer second-chance accounts. Community banks and credit unions may also have creative programs to help you restore your relationship with a bank or create a new one.

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High fees are a major deterrent, with nearly 30 percent of unbanked consumers citing them as a reason for not having a bank account.

Banks' checking account disclosures are often opaque, with 111 pages of fine print on average, making it difficult for people to understand the terms and conditions.

People are also put off by the costs of maintaining a bank account, including meeting minimum balance requirements and paying fees for overdrafts and other services.

About one-third of overdraft users close their accounts because of high fees, highlighting the financial burden that banks can impose on their customers.

A lack of trust in banks is another common reason, with some people feeling that banks are not transparent or fair in their dealings.

If you've had issues with unpaid overdraft fees or bounced checks, you may be on a no-account list, which can make it tough to open a new deposit account.

Your past financial behavior can indeed put you on a no-account list, as explained by Bruce McClary, senior vice president of communications at the National Foundation for Credit Counseling (NFCC). He says that if you're unbanked, you may have a bad ChexSystems report due to some financial setbacks or stumbles.

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Some banks offer second-chance accounts, which are designed for those with a poor credit history. Chime and Wells Fargo are two well-known national names that offer these types of accounts.

You might also look closer to home and compare options at smaller institutions in your community, as McClary suggests. Community banks and credit unions often have creative programs to help people get back on their feet financially.

Overdraft fees can have long-term consequences, including involuntary closure of checking accounts, and can even lead to being reported on ChexSystems.

Most adults had a bank account and were able to obtain credit in 2022. This is a significant milestone, but it's essential to acknowledge that notable gaps in access to financial services still exist.

Notable gaps in access to financial services exist, particularly among those with low income, Black and Hispanic adults, and those with a disability. These groups often face barriers in obtaining credit and using financial services.

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Use of traditional payment and credit methods remains high compared to relatively new financial services like cryptocurrency and Buy Now, Pay Later (BNPL). However, lower-income adults and Black and Hispanic adults tend to use these newer products more frequently.

While overall use of cryptocurrency and BNPL is still low, it's essential to recognize that these products can be valuable tools for managing finances. By understanding the benefits and risks, individuals can make informed decisions about their financial well-being.

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33 percent of unbanked consumers don't trust banks, and it's understandable given some banks' questionable practices.

With the banking industry, there are a lot of regulations and rules in place to protect consumers, including the Consumer Financial Protection Bureau (CFPB), which can help resolve issues with your bank.

You can work with a bank knowing that your interests are protected, and there's recourse if a bank breaks the rules and causes financial harm.

For many people, accessing financial services is a challenge due to their location. Some live in rural areas with limited banking infrastructure.

Branches of banks are often concentrated in urban areas, making it difficult for those in rural areas to access basic banking services.

A lack of transportation and mobility can also hinder access to financial services, as people may not have the means to travel to a bank.

Our branches are strategically located in major cities across the country, making it easy to find one near you. The main office is situated in downtown area, with easy access to public transportation.

The nearest branch to the main office is located in the financial district, about a 10-minute walk away. This branch is open from 9am to 5pm, Monday to Friday.

In addition to the main office and financial district branch, we also have a branch in the university area, which is open on weekends and has extended hours during peak seasons. This branch is a popular spot for students and young professionals.

Our branches are equipped with state-of-the-art technology and friendly staff who are happy to assist with any questions or concerns you may have.

Access for Racial and Ethnic Minorities is a pressing concern. Research shows that racial and ethnic minorities are more likely to live in areas with limited access to healthcare services.

In the United States, for example, African Americans are more than twice as likely to live in a healthcare desert as non-Hispanic whites. This disparity has serious consequences for their health and well-being.

A lack of access to healthcare can lead to delayed diagnosis and treatment of serious health conditions, which can be life-threatening. In areas with limited healthcare access, patients are more likely to rely on emergency rooms for non-emergency care.

Many racial and ethnic minorities also face barriers in accessing healthcare due to language and cultural differences. In some areas, over 50% of the population speaks a language other than English at home, making it difficult for healthcare providers to communicate effectively.

Language barriers can lead to misunderstandings and misdiagnoses, which can have serious consequences. In some cases, patients may not receive the care they need due to a lack of understanding between healthcare providers and patients.

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Racial and ethnic minorities are also more likely to live in areas with limited access to healthy food options, which can exacerbate health disparities. In some areas, over 30% of residents live in food deserts, where healthy food options are scarce.

Food deserts can lead to a range of health problems, including obesity and diabetes. Racial and ethnic minorities are already disproportionately affected by these conditions, making access to healthy food options even more critical.

Overall, addressing access for racial and ethnic minorities requires a multifaceted approach that takes into account the unique challenges they face. By understanding these challenges and working to address them, we can help to reduce health disparities and improve outcomes for all.

Alternative Financial Services play a significant role in the lives of many unbanked individuals.

Thirteen percent of adults used nonbank check cashing or money orders in 2022, with unbanked adults being much more likely to use these services. Twelve percent of banked adults used a nonbank money order or check cashing service, compared with 31 percent of unbanked adults.

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The use of nonbank check cashing and money orders was more common among those with lower income, Black and Hispanic adults, and adults with a disability. In fact, nearly 3 in 10 Black adults used these services.

Here are some key statistics on the use of nonbank check cashing and money orders:

Nonbank check cashing and money orders are a common practice among some adults in the US. Thirteen percent of adults used nonbank check cashing or money orders in 2021, a number that has remained unchanged since then.

This service is used by both banked and unbanked adults, but the unbanked are much more likely to have used it. Twelve percent of banked adults used a nonbank money order or check cashing service, compared with 31 percent of unbanked adults.

Use of nonbank money orders and check cashing has actually fallen among both unbanked and banked adults since 2019. However, it's possible that people are substituting these services with other nonbank products and services.

Some demographics are more likely to use nonbank check cashing and money orders. For example, those with lower incomes are more likely to use these services. The table below shows the percentage of adults who used nonbank check cashing and money orders by family income.

Black and Hispanic adults are also more likely to use these services, with nearly 3 in 10 Black adults using them.

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Payday and pawn loans are types of alternative financial services that people use when they need cash quickly. Five percent of adults used one of these loans in 2022, a share that has remained flat in recent years.

Adults with lower self-reported credit ratings are more likely to use payday, pawn, auto title, or refund anticipation loans. Nearly 1 in 5 of those rating their credit as "very poor" used one of these products.

One interesting thing to note is that people without a credit card are more likely to use these loans, with 11% of them using them, compared to just 3% of those with a credit card.

Here's a breakdown of the demographics that are more likely to use these loans:

These loans are often used by people who are struggling financially, and it's clear that certain demographics are more likely to use them.

Being unbanked can have some significant consequences. You'll pay fees for alternative services such as check cashing and prepaid debit cards.

Carrying cash can be a hassle, and if you lose it, you might not be able to recover it. Not having a bank-issued debit card can mean you'll need to carry cash, which might not be recovered if lost or stolen.

Paying bills with money orders is less convenient than using online bill pay. You're missing out on a high-yield savings account, which currently earns a yield that's outpacing inflation.

Here are some of the risks associated with being unbanked:

Being unbanked can have serious consequences. You'll pay fees for alternative services such as check cashing and prepaid debit cards.

Carrying cash can be a hassle, and if you lose it, you might not be able to recover it. Not having a bank-issued debit card can mean you'll need to rely on cash, which can be a significant risk.

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Paying bills with money orders is less convenient than using online bill pay. You'll have to physically go to a store to purchase a money order and then mail it to the biller.

Having a bank account can save you money and make it easier to manage your finances. Perks can include having a debit card, direct payroll deposit, online bill pay and digital banking options.

Here are some of the fees you might encounter if you're unbanked:

Making late payments can have severe consequences. A single missed payment can lead to a 60-day late fee, which is 25% of the total amount due.

If payments are consistently late, creditors may report you to the credit bureaus, damaging your credit score. This can make it harder to get approved for loans or credit cards in the future.

Late payments can also trigger a default, which means the creditor can seize your assets to recover the debt. In some cases, this can even lead to wage garnishment.

On the other hand, making timely payments can have its own set of consequences. Paying off debts too quickly can lead to a tax liability, as the interest paid on those debts may not be deductible.

The IRS considers interest paid on debts to be a tax-deductible expense, but only up to a certain limit. This can be a trap for people who pay off their debts too quickly, as they may be left with a tax bill they didn't expect.

You can have the benefits of FDIC insurance without traditional banking at a big bank.

In fact, digital banks and local community banks can offer affordable and tailored bank accounts.

For those who are unbanked, there are often reasons beyond their control that make it difficult to open and maintain a traditional bank account.

Consider looking into second-chance accounts or those with no minimum balance needed to open.

Having a bank account is crucial for achieving financial stability, especially as you age.

Young adults often don't see the value in traditional banking, with 62 percent of Gen Zers not having a bank account, as reported in a 2022 study by Thunes.

As you grow up, you'll need a proven track record of responsible banking behavior to participate in grown-up activities like buying a car or a house.

Having a bank account is the first step towards building a retirement cushion and accessing higher-yield savings products.

If you're in college, there are special bank accounts designed specifically for students that can help you get started with banking.

The world of banking can be overwhelming, and it's no wonder that some people choose to remain unbanked. According to the World Bank, an estimated 1.7 billion adults worldwide lack access to a formal bank account.

Many people struggle to manage their finances, and the thought of opening a bank account can be daunting. In fact, a survey found that 71% of unbanked individuals cited a lack of trust in banks as a major reason for not having an account.

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For some, the cost of maintaining a bank account is a significant barrier. A bank account can come with fees, such as monthly maintenance fees, overdraft fees, and ATM fees, which can quickly add up. In some cases, these fees can be as high as $10 per month.

The lack of access to financial services can have serious consequences, particularly for low-income households. A study found that unbanked households are more likely to rely on expensive alternative financial services, such as payday lenders.