The Problems of Being Unbanked

The Problems of Being Unbanked

While many unbanked people believe that they don't have enough money to keep in a bank account, opening and maintaining a new account is cheaper —and more important —than you might think.
woman banking on computer
woman banking on computer Source: Getty Images

It's easy to assume that everyone you meet has a bank account for depositing paychecks and paying bills, but there are actually millions of Americans who don't use banks at all. Even a good portion of those who do have bank accounts also rely on financial services provided outside of banks, such as payday loans and check cashing. While opening a bank account might seem impractical if you're scraping by financially, leaving the ranks of the unbanked is actually a good first step to improving your situation.

What Does It Mean to be Unbanked?

The FDIC uses the term "unbanked" in reference to households that don't have any accounts at a bank or other financial institution. In 2015, about 7% of all American households were unbanked, and a further 19.9% were "underbanked", meaning that they had bank accounts but also obtained alternative financial services from nonbank sources. Altogether, that means over 25 million U.S. households are unbanked or underbanked.

From a personal standpoint, being unbanked poses several financial disadvantages. Without a bank account, there's no way to receive direct deposits from an employer, and you won't be able to start building a credit history for future borrowing. Having a bank account also gives you access to a safer way of transferring and saving money. While the U.S. unbanked population has declined from 2013 to 2015, there are still millions of people who live without a bank account.

Why Do People Stay Unbanked?

The FDIC's National Survey of Unbanked and Underbanked Households not only counts the number of unbanked respondents, but also asks them why they don't have bank accounts. Of the unbanked participants in the 2015 survey, 57.4% responded that one of their reasons for being unbanked was that they "do not have enough money to keep in an account". Other common explanations included a desire for privacy, lack of trust in banks and excessively high account fees.

Not only do unbanked households feel financially unable to open bank accounts, they also have doubts about banks' willingness to take them on as customers. When asked about how interested banks are in serving households like theirs, 55.8% of unbanked participants replied that banks were "not at all interested". Given such skepticism, it isn't surprising that few unbanked individuals make efforts to open accounts —but the benefits are often greater than they realize.

What's the Point of Opening a Bank Account?

There's a lot to be gained from opening a bank account: your deposits are insured against loss by the federal government, and the raft of services that banks provide can make it much easier to manage your money. As soon as you open your account, you'll receive a debit card, ATM access and free check deposits, all of which you can use right away. These bank services reduce the amount of cash you have to carry and cut out the fees you would pay to cash checks with alternative lenders.

Keeping your money in a bank also has long-term benefits. Depending on the account you choose, you can earn interest on your balance. Typically, savings accounts come with the strongest interest rates, but because they have legal limits on the number of withdrawals you can make, most people with savings accounts will also open a checking account for paying everyday expenses. As you maintain a relationship with a bank, you build credit with the institution and gain access to better terms on loans and other bank services, like investment.

How Do You Open a Bank Account as an Unbanked Consumer?

The swiftly changing field of retail banking has seen an increase in the number of bank accounts that don't strain customer's wallets with excessive fees and minimums. Online-only banks, for instance, charge very few account fees and usually don't require any minimum opening deposit, so customers won't need to save up before they try to open an account. In addition, unbanked applicants won't have to worry about taking time out to visit a physical bank, since online banks allow you to apply online through their websites.

Aside from your name and physical address, banks may ask for your social security number or driver's license number in order to verify your identity. If you don't have a social security number, many banks will accept an Individual Taxpayer Identification Number (ITIN) instead. You can file IRS Form W-7 to apply for an ITIN. Application policies vary slightly by institution, so checking account opening requirements online should be the first step to choosing a new bank.