Unbanked or underbanked: Can I save?

Closeup of young woman looking at her phone for different ways to save moneyImage: Closeup of young woman looking at her phone for different ways to save money

In a Nutshell

If you’re not using mainstream banking products such as checking or savings accounts, it can be difficult to save. But there are products available to help people who are unbanked or underbanked save and grow their savings over time.
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If you’re one of the millions of people in the United States who’s unbanked or underbanked — meaning you don’t use a bank account at all or just minimally — safely saving for the future can be a challenge.

But there are resources available that can help people establish good financial habits, start saving and improve their financial health without mainstream banking products and services.

Let’s take a look at what it means to be unbanked or underbanked, and then explore specific products that can help people in these situations save.

Unbanked and underbanked: What is it?

The Federal Deposit Insurance Corp., or FDIC, says people are unbanked if they don’t have a checking or savings account with a traditional financial institution. Instead, they rely solely on alternative financial services such as money orders, prepaid debit cards, retail check cashing services and payday loans to cash checks, pay bills and borrow money.

People who are underbanked may have a checking or savings account at a bank or credit union, but like unbanked consumers, they also use nonbank services to pay bills, cash checks and borrow money.

Why the unbanked and underbanked avoid mainstream banking

An 2017 study by the FDIC found that many U.S. households are unbanked because they don’t have enough money to put in an account, they don’t trust banks and they believe account fees are too high or unpredictable. Others are unbanked because they don’t have the proper identification to open an account or they have outstanding fees on old accounts.

An earlier study in 2010 by the Federal Reserve Bank of Kansas City cited convenience as a major factor for why underbanked consumers choose to use alternative financial services. Many say bank branches aren’t close by, and it’s easier to stop at a retail store where they can cash their checks, pay their bills, transfer money and do their grocery shopping all in one place.

Banking and saving challenges for the unbanked or underbanked

People who don’t use mainstream banking services face some challenges that can limit their financial opportunities.

Limited access to wealth building tools

Perhaps the most obvious challenge for people who are unbanked is not having a place that’s separate from their day-to-day finances to keep their savings, says Leigh Phillips, CEO of SaverLife. People who use traditional banks have access to tools such as direct deposit and automatic transfers that help make saving easier.

Plus, banks and credit unions offer a suite of products beyond basic checking and savings accounts such as money market accounts, CDs and other ways of investing that help people build wealth.

“Services that are designed to help people save are really inaccessible to people that are unbanked,” Phillips says.

Limited access to credit

Having access to credit products that offer reasonable interest rates can help you achieve your goal of buying a car or owning a home. But it’s tough to qualify for a loan without a solid credit history. If all your financial transactions are in cash and you’re relying on payday loans when you need to borrow money, you won’t build credit.


People often cite fees as a reason to avoid banks and credit unions. But retailers that offer non-bank services, such as check-cashing and money orders, typically charge a fee for each transaction. This can add up if you’re cashing multiple checks and getting money orders to pay bills each month.

“Having a relationship with a financial institution opens you up to be able to utilize some of those services at a much lower cost — if any — depending on the type of account you have,” says Lindsay Saling, director of retail banking at Bryn Mawr Trust.

Increased risk

When you keep your money in a federally insured bank or credit union, it’s protected for up to $250,000 per person, per account category. Other products like prepaid debit cards may not offer the same protection. And if you’re keeping large amounts of cash in your home, you’re at risk of losing it if there’s a break-in, fire or other event that damages your home.

Your options

It’s tough to save if you’re not using traditional banking products and services. But there are options that can help you establish a habit of saving and transition to mainstream banking. Here are some to consider.

  • Second-chance checking — Some financial institutions offer second-chance checking accounts to people who’ve had problems with outstanding account fees in the past.
  • Free checking accounts — Many banks and credit unions offer checking accounts that don’t require you to maintain a minimum balance to avoid a monthly maintenance fee. Plus, you can often get free access to mobile banking services that let you deposit checks remotely, transfer money and pay bills — all from your mobile phone, making it a convenient option if you don’t want to visit a branch. To avoid overdraft fees, choose an account that doesn’t charge them or allows you to opt out of overdraft protection.
  • Prepaid debit cards with minimal fees — You can opt to load money onto a prepaid card and use it to pay bills or withdraw cash from an ATM. But fees for prepaid cards can add up, so select one that doesn’t charge a monthly fee or waives it if certain conditions are met and minimizes fees for other transactions.
  • PayPal — With certain types of PayPal accounts, you can maintain a balance, set up direct deposit, remotely deposit checks and transfer money.

What’s next?

Phillips recommends looking for something that works for your lifestyle, allows you to opt out of overdraft programs and doesn’t charge you for services that are routine.

“With the right mechanisms and support, people can save money … and that’s true regardless of [their] financial status,” Phillips says.

There’s no one right solution for everyone who’s unbanked or underbanked, so it’s important to research your options. To find the product that’s right for you, consider speaking with someone at your local bank or credit union.

“[Understanding] how someone does their banking helps us determine what the best account would be for them,” says Saling.

And an account that’s a good match for the way you plan to bank can help you avoid unnecessary fees.

Don’t be afraid to ask questions if something is unclear or you need more information. It’s important that you understand all the terms and conditions because you will ultimately be responsible for managing your account and paying any fees that are assessed.

About the author: Jennifer Brozic is a freelance financial services writer with a bachelor’s degree in journalism from the University of Maryland and a master’s degree in communication management from Towson University. She’s committed… Read more.