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The term "unbanked" refers to people who don't have a checking or savings account. About 4.5% of U.S. households were unbanked in 2021, according to the Federal Deposit Insurance Corp. (FDIC). That works out to almost 6 million households. Managing your finances and saving for the future can be more difficult without a bank account, but here's how you can open a bank account in a few simple steps.
What Does It Mean to Be Unbanked?
Those who are unbanked do not have deposit accounts at banks or credit unions. That includes checking and savings accounts. Below are some reasons why someone might become or remain unbanked.
Opening Deposit Requirements
Some financial institutions require $25 to $100 to open a checking or savings account. That can create a barrier for folks who are living paycheck to paycheck, but not all bank accounts have opening deposit requirements.
Minimum Balance Requirements
You may be required to keep a certain amount of money in your bank account at all times. Minimum daily balance requirements for checking accounts typically range anywhere from $25 to $100. Savings accounts vary and could be upwards of $1,000 in some cases. However, there are checking and savings accounts that have no minimum balance requirements.
Find Digital Checking Accounts
Lack of Access
In-person banking can be difficult if you don't have access to reliable transportation. For some, going back and forth to a local branch may require paying for public transit. Similarly, online banking may not be an option for folks without a secure Wi-Fi connection.
Not Having the Necessary Documentation
Most banks and credit unions require a valid government-issued ID, proof of residency and a Social Security number or Individual Taxpayer Identification Number to open an account. Not everyone has all these things readily available—or they may assume that they need more documentation than is necessary (such as proof of citizenship).
Negative Banking History
ChexSystems is a banking reporting agency that tracks deposit accounts you've had with banks and credit unions. It maintains a report that notes any involuntary account closures, unpaid balances, overdrafts, bounced checks and other negative activity. Most financial institutions will review your ChexSystems report when you apply for a new account. That may deter people from opening new accounts, but it's possible to clean up a ChexSystems report.
Unbanked vs. Underbanked
These terms are sometimes used interchangeably, but they mean different things. Underbanked individuals have partial access to banking services.
| Unbanked | Underbanked |
|---|---|
| People who don't have checking or savings accounts at banks or credit unions | People who have checking or savings accounts but also rely on alternative financial services, such as check cashing services, money orders and payday loans |
Downsides of Being Unbanked
- Security: Checking accounts come with a debit card you can use for day-to-day expenses and paying bills. If you lose it, you can simply contact your bank or credit union and request a new one. You can dispute fraudulent transactions, and your funds are insured for up to $250,000 per depositor, financial institution and ownership category. Cash is a different story—once it's lost or stolen, it's gone.
- Check cashing fees: If you have a bank account, you can typically cash checks (or deposit them into your account) at that financial institution for free. Check cashing stores may charge as much as 12% of the check amount. There's also a fee for adding check funds to a prepaid debit card.
- Inconvenience: Not every retailer accepts cash. To shop online or with a merchant that requires a debit or credit card, you'll likely have to put cash onto a prepaid card. This can result in fees and won't do anything to build your credit.
- No access to checks or bill pay services: You can't write checks without a checking account. To participate in online bill pay, you'll need a prepaid debit card that has sufficient funds.
- Difficulty saving for the future: Saving for long-term financial goals can be tricky if you're unbanked. Whether you're setting money aside for a new car or retirement, you'll have to keep a large amount of cash somewhere. Storing cash in your home means it's vulnerable to theft or being lost or destroyed. You'll also miss out on earning interest.
- Less opportunity to build your credit: Your credit score is an important part of your financial health. You can establish a good score by using credit accounts responsibly and paying your bills on time every month. Being unbanked or underbanked likely means that you don't have many, or any, credit accounts to help you build credit.
How to Open a Bank Account
If you're currently unbanked, it's still possible to open a checking or savings account. It's wise to have both—a checking account for daily spending and paying bills, and a savings account for your emergency fund and other financial goals. Here are the steps to take:
1. Research Financial Institutions
Cast a wide net and compare online banks, traditional banks and credit unions. Pay attention to the following details:
- Opening deposit requirements
- Minimum balance requirements
- Fees
- ATM access
- Physical locations
- Customer service reviews
2. Organize the Necessary Documents
Once you know which financial institution you want to use, check to see what documents they require to open an account. That will likely include your:
- Current government-issued ID
- Social Security number (or Individual Taxpayer Identification Number if you don't have a Social Security number)
- Proof of address
- Birthdate
- Contact information
3. Apply and Fund Your Account
You can probably complete your application online or in person. Once it's approved, you can make your initial deposit and begin using your account. Having a strong budget and setting up automatic bill pay can help you stay on top of your financial obligations.
The Bottom Line
Checking and savings accounts can make it easier to manage your finances and accomplish your financial goals. Even if you've been unbanked or underbanked for a while, it's not too late to make it happen.
While you work on better managing your finances, it's also good to get in the habit of checking your credit score and credit report. You can do both for free with Experian. It's the first step toward strong credit health.