By Amy Persyn

WHAT DOES IT MEAN TO BE UNBANKED OR UNDERBANKED?

An individual or household who is UNBANKED doesn’t have a traditional bank account and relies on alternative financial services - such as payday loans, check cashing services, money orders, and more, to manage their finances.

An individual or household who is UNDERBANKED has a bank account, but often relies on alternative financial services. This could be because they don’t have access to convenient and affordable banking services, or because they prefer or need to use alternatives to the traditional financial services.

Likely, most of you reading this article use a bank account to manage your everyday finances. You may also have come to rely on a variety of services to manage your personal finances each and every day, like ACH payments for bills, direct deposit of your pay to accounts, using an in-network ATM for withdrawing cash in order to avoid fees. For most of us, these services are easy to access, and with the secure technology, we can conduct our transactions simply and affordably. It is probable that most of you are accessing these services via mainstream banking institutions, and the data I have studied over the years supports that assumption. 

The data also indicates that a surprising number of Americans are considered unbanked or underbanked. According to a 2021 study published by the FDIC (Federal Deposit Insurance Corporation): 

• An estimated 4.5% of U.S. households were unbanked in 2021. This represents approximately 5.9 million U.S. households.
• Almost 14.1% of U.S. households are underbanked (roughly 18.7 million adults).
• 29.2% of unbanked and 38.1% of underbanked households earn less than $30,000 per year.
• Nationally, 36% of Black households and 33.4% of Hispanic households are unbanked or underbanked, compared to less than 12% of white households.

What are some of the reasons people go unbanked?
The FDIC survey reveals a few common reasons people might go unbanked: Being unable to meet minimum deposit requirements, mistrust of banks, and concerns over acquiring fees. Some people who are unbanked have made mistakes or mismanaged accounts in the past and are fearful of re-instituting. 

How do people manage without accounts?
People without accounts turn to other solutions to access their money. While there are some viable options, such as prepaid cards which solve some needs for having currency that can be processed electronically, many other options come at a high cost. Services such as payday lenders, check cashing services, and pawn brokers charge higher fees than traditional accounts. Given that many of the households that are in this population are also making less than $30,000 annually, the cost of the services required to advance or cash a paycheck is exorbitant and puts less in the pockets of those who need it most and diminishes the ability of some to begin to get ahead. 

What is the BANK ON program?
The Bank On initiative is an effort to expand safe and affordable mainstream banking services to the unbanked. Accounts in the Bank On program meet standards and are certified under account standards that are overseen by a national non-profit organization, Cities for Financial Empowerment. These accounts not only help consumers but also help banks serve customers they may not otherwise be able to reach or service. These accounts may have benefits such as lower usage fees and minimum balance and account opening requirements, checkless checking with debit card access, and limitations or no overdraft access and no overdraft fees. These accounts can also be great learning accounts for young adults because they are basic and often easier to manage and avoid fees.

Why do we participate?
I work for First State Bank, and we have developed an account based on the Bank On standards. We developed RI$E Checking because we believe in making an effort to meet the financial needs of all of our neighbors. Our vision is to create prosperity for our customers while positively impacting the communities we serve. Offering accounts that allow people to access banking, even when they may have had a negative banking experience in the past, is a step we’re taking to solve the unbanked issue right here in our community, one account holder at a time. I happen to be partial to First State Bank, however, a list of accounts that are certified can be found at: joinbankon.org/accounts.