No Checking or Savings Account? How to Survive Without Having a Bank Account
Last updated: Aug 25, 2008
A surprising large percentage of the American population do not have a bank account. Many studies have given creedance to the theory that checking and savings account are not right for everyone. At the end of this article, we will give you some tips on how to find the best services for operating without a bank account.
In 2005, These unbanked and underbanked consumers represent a considerable market opportunity for financial services companies. In 2005, the unbanked and underbanked bought $3 trillion of goods and services with cash and money orders, according to a widely quoted article "Unbanked: Why the Time is Now". Too often, these consumers pay a premium to get access to their funds at fringe financial outlets.
Some terminology: Unbanked means a person with no bank account of any kind: no checksing, savings or credit card. Underbanked means a person who has some sort of bank account but still uses services like check cashing, money orders and payday loans.
According to a 2007 Time magazine article, over 40 million people operate in this country without a bank account.
Walmart jumped on the band wagon last year by offering check cashing of government or printed payroll checks at $2.50/pop. They also offer a reloadable, prepaid Visa debit card that does not require a bank account or proof of U.S. citizenship.
The article quotes Jane Thompson, president of Wal-Mart Financial Services, as saying that the average check-cashing customer at Wal-Mart earns $350 per paycheck and has never had a credit card before.
It's pretty hard to belive that there are so many people operating this way, but then we get calls all the time for people who are looking to contact Chexsystems. Chexsystems is the so-called who's who list in the check-bouncing/bad check world. Having your name in Chexsystems pretty much guarantees that you won't be able to open a checking account in most traditional banks. I haven't seen the numbers but I am guessing that there is a close relationship between people who can't open a checking account and people with bad credit. Oviously, if you have bad credit you can't get a credit card; in today's credit card society, that is a very limiting factor on many people's lifestyles.
So who is likely to be unbanked or underbanked?
Generally low income people do not have checking accounts, while low to middle income people are more likely to fall into the underbanked segment. Specifically:
A 2006 study of unbanked consumers by Scarborough Research found that 10.2 million adults lived in households that do not have any relationship with a bank for either checking, savins or credit cards. Unbanked consumers are more likely to be female, younger, lower-income, single and to hold blue collar occupations.
The TowerGroup reports that "More than 100 million consumers living in the United States today are considered "unbanked," "underbanked," or credit under-served". In addition, the TowerGroup predicts that US Check volumes will decline to 17.9 transactions by 2009, but remain in use do the the use by business.
Reasons Why People are Underbanked:
- Distrust of the banking system.
- Cannot maintain sufficient balances to avoid high monthly fees
- Write too few checks to need a checking account
- Have too little income to justify a savings account.
- The decline of bank branches in many lower-income and inner-city neighborhoods has made a banking relationship inconvenient for many consumers.
- Have no Social Security Number (believe it or not there are 20 million adults in this country who do not have a SSN).
Tips for Using "Unbanking Services"
- Loans: Peer-to-Peer lending sites, which require no credit. Some of the big ones: Prosper.com (full disclosure, I have a Prosper account); VirginMoney, which formalizes loans between friends and family members; and Finanz and GreenNote, which provide alternative student-loan funding sources such as friends, family and alumni.
- Check Cashing: Walmart offers check cashing for a $3/check flat fee. If you compare this with checking account fees of $10/month and you are paid twice a month, check cashing may be a cheaper alternative to banking.
- Credit Cards Alternatives. You can use Prepaid Cards. Shop around online to find a credit with the lowest setup fee (yes, there is a setup fee involved.) You can get one online and reload it, or buy one from a store. In this way, you can use plastic instead of cash.
- Debit Cards: Debit cards tied to non-banking financial instituions like Paypal. This may be a good option for those who buy and sell online.
- Secured cards: There are many offered from various banks. Your credit limit depends on your deposit (any bank will give you a savings account as long as you have 2 IDs - it's a checking account which is difficult to get).
- Checking Accounts: Non-Chexsystems banks. You can try this list, which is kept current.
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