What Is Second Chance Banking?

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If you’ve been denied a traditional bank account for any number of reasons, you aren’t out of luck. Second chance accounts can be a great option for anyone who has a checkered banking history but still needs access to banking services.


What Is a Second Chance Bank Account?

When a customer is considered a “bad risk,” banks reserve the right to refuse them services. Consumers who are a bad risk to banks are people who have at least one of the following:

  • A history of bounced checks (which can happen to anyone by mistake)
  • A history of hot/bad checks (purposefully done when you write a check and know you don’t have the funds to cover the transaction)
  • A low credit score (often a result of bad banking history)
  • Exhibited a pattern of trying to withdraw too much money or transfer between accounts more than is typically allowed

When any of these things happen, banks will typically charge fees to the account. This can result in insufficient funds, which can exacerbate the cycle and flag you as a bad risk.

It’s not as easy as switching banks, either. Just as all credit reporting systems use the same information, banks have their own internal system that compiles all of your information. ChexSystems and Early Warning Services are just two examples; banks can get your history from these systems to analyze your history and determine if they want to offer their services to you or not.

If any of the above have been following you around like a plague, then a second chance banking account might be a good solution.


Why Everyone Needs a Bank Account

It seems almost impossible to go about today’s world without having a debit card or checking account. If you don’t have an online account, you might have to drive all over town to pay bills, wasting valuable time and money on transportation. Many places even charge extra fees for doing things in person! If you don’t have a safe place to keep your money either, it can put you at even greater financial risk.

However, not everyone has the means for or access to a traditional bank account. Many institutions require a certain amount of funds to be in the account to avoid fees or have other criteria that not everyone can meet. It’s hard enough to get by financially without more hurdles to jump over.

FAST FACT : According to the FDIC, it’s estimated that about 5.4 percent of households (approximately 7.1 million people) in the U.S. were “unbanked” in 2019, meaning that no one in the household had a checking or savings account.

The Ins and Outs of Second Chance Banking

Many financial institutions offer something called a “second chance bank account” for people who have struggled financially and want to get their finances back on track.

A second chance account might not offer the full range of services that a traditional account does, and they can have their own set of fees and requirements. However, this is still a good option for starting fresh and repairing past damage.

A second chance account will offer you the bare minimum of what you need to get by in today’s world with a checking account. This gives you the chance to use your money easily, fix your financial status, and limits the bank’s risk at the same time. Think of it as a starter account that teaches you to manage your money wisely.

What Features Come With a Second Chance Bank Account?

It’s important to know what to expect when you apply for a second chance bank account. Since this account is meant for those who don’t have the best banking history or credit, there are usually some restrictions and requirements that come with the account. Here are five features you can expect to see in a second chance bank account.

1. Monthly Fees

The monthly fees are normally low enough to not be a hindrance but enough to make you want to “graduate” to a traditional account.

2. Low Withdrawal or Daily Debit Limits

A lot of second chance accounts encourage you to spend wisely by limiting how much you can withdraw or use in a day. This can be bothersome, but issues can be avoided by planning out what you need to withdraw and spend in advance.

3. No Checks

Finding checks in a second chance account is very rare. These accounts typically do not offer checks in order to prevent bounced checks, hot/bad check writing, and insufficient funds charges.

4. Direct Deposit Requirements

Some second chance accounts require that you set up direct deposit in order to use the account. They may also require a certain dollar amount in direct deposits each month to keep the account open. This requirement is to ensure that even if you overdraw your account, funds will be deposited back into the account to cover the overdraft.

5. Financial Literacy/Responsibility Classes

These classes are oftentimes provided by the bank or credit union that approved you for the account. Typically these classes are offered online and can be a helpful tool if you want to learn about money management and budgeting.

The idea of a second chance bank account is to get you in a better place financially and teach you how to use your money wisely. Using an account like this is actually much more convenient and beneficial than using check-cashing services, payday loans, or pre-loaded debit cards, which can charge their own fees and be a hassle to boot.

If you stick to the program and show your bank habits have changed for the better, you’ll usually be able to upgrade to a regular checking account in about six to 12 months.


5 Things to Look for in a Second Chance Account

There are options out there that may make you want to choose one second chance account over another. When you’re deciding, try to find ones with the majority of these features:

  1. No requirement for a minimum balance
  2. Small or non-existent monthly fee
  3. Check-writing privileges
  4. Internet banking access
  5. Debit card privileges

The Best Second Chance Banks By State

Most major banks fail to offer second chance checking accounts. However, many community banks and credit unions do but under different names like “Opportunity Checking” or “Fresh Start Checking.”

We regularly update the list of banks offering second chance checking accounts in every state. Here’s an overview of these accounts and where you can find them in your area.

Takeaway

If you’ve been blacklisted by banks for past banking mistakes, you are not alone. Remember that banks are a business, and businesses have one foundational goal: to make money. Banks do this easily by charging fees to consumers at all different levels, but it’s harder for those consumers who are already struggling with their finances. Basically, when you’re down it can be difficult to get back up.

A second chance bank account can help pull you back to where you belong. They’re more convenient and allow easier access to your money, and many will help you learn the skills you need to be financially responsible. Don’t shy away from something that could be a positive change in your life! Give second chance banking a chance today.

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