Are You Unbanked or Underbanked? Here's Why You Should Change That in 2024

It might seem as if everyone in America has a bank account and a credit card, but this isn't true. According to the FDIC, as of 2021, 4.5% of U.S. households were "unbanked," and another 14.1% were "underbanked."

Being unbanked or underbanked can leave people vulnerable to higher fees, less access to credit, and lots of inconvenience. There are many advantages to having a bank account and being fully "banked." Fortunately, today there are more options for people to get access to low-cost banking services.

Let's look at what it means to be unbanked or underbanked, and why it's important for more people to get fully included in the financial system.

Unbanked vs. underbanked

The FDIC National Survey of Unbanked and Underbanked Households defines "unbanked" as a household where no one has a bank or credit union checking or savings account. "Underbanked" households have a bank account (or credit union account), but still use some nonbank transaction services (like money orders or check cashing services), or nonbank credit (like payday loans, rent-to-own, or auto title loans).

Why does it matter that some people are unbanked or underbanked? Ideally, everyone in the U.S. could have a bank account so they can benefit from FDIC insurance and other consumer protections. Nonbank transactions and nonbank credit services tend to charge higher fees and provide lower-quality experiences for customers.

Economic inclusion is the idea that everyone should be part of the financial system and benefit from its shared umbrella of protections. Being unbanked or underbanked can leave you out in the cold.

Why people stay unbanked

It's not so simple to just say that "everyone should have a bank account." People who are unbanked or underbanked are making personal choices for valid reasons. Some people live in neighborhoods underserved by bank branches. Some people don't have enough money to open a bank account. Some people can't afford bank fees, or have a low ChexSystems score from previous bad experiences with bank accounts.

The FDIC survey found that Black and Hispanic households, lower-income and less-educated households, single-mother households, and households with a working-age person with a disability were more likely to be unbanked. When asked their reasons for being unbanked, people said:

• They don't have enough money to meet minimum balance requirements (21.7% of respondents)
• They don't trust banks (13.2%)
• Avoiding a bank gives me more privacy (8.4%)

People from historically disadvantaged and marginalized communities are often less likely to trust banks. For example, a 2023 survey of LGBTQIA+ people found that 23% of people in this community did not have a checking or savings account, and 11% said they had experienced discrimination when using financial services. Banks have a responsibility to build relationships and trust among communities of people who have traditionally been left out.

Why you should get banked in 2024

If you don't have a bank account, or are underbanked and relying on some nonbank financial services, you should strongly consider getting fully "banked" in 2024. Here are a few reasons why.

Getting a bank account gives you FDIC insurance for your deposits

FDIC insurance for bank accounts (and NCUA insurance for credit unions) is one of the most underappreciated benefits of the financial system. Ever since it was created during the Great Depression, the FDIC has protected the bank accounts of everyday people. Unless you have lots of money in the bank (over $250,000 per account) you won't lose that money if the bank fails.

Some unbanked people have started to use peer-to-peer (P2P) payment apps and digital wallets, like PayPal, Venmo, CashApp, Apple Pay, or Google Pay to store their money, instead of a bank account. But these payment apps do not guarantee that your money is safe with deposit insurance. If your payment app fails, or the app's partner bank fails, unless you've jumped through the right hoops to get pass-through deposit insurance, you could lose every dollar that you have in those digital wallets.

Don't let your money fall into a black hole. Keep your savings and your everyday checking account cash in a bank or credit union with federal deposit insurance, not a payment app.

Nonbank services often charge higher fees

When people have to use nonbank services for sending money, cashing checks, or borrowing, they are vulnerable to higher fees, higher interest rates, and fewer protections. The Ascent's analysis found that someone with a prepaid debit card and check cashing services might be spending $150 per year on fees for nonbank financial services.

If you're worried about bank fees, keep in mind that many banks offer second-chance bank accounts and free checking accounts with no fees and no minimum balances. It's easier than ever to access your bank account with mobile banking. Banks can give you a better deal than you might think.

Getting a credit card can help you build credit

If you don't have good credit, or have no established credit history, it's easy to think that banks aren't for you. But if you're borrowing money from nonbank credit services, you're going to get hit with higher interest rates. Getting plugged back into the financial system and building your credit score can help you save big money on borrowing costs in the future. Consider signing up for a secured credit card or credit building product like Credit Sesame's Sesame Credit Builder.

Bottom line: Despite people's frustrations with banks, the fact is that banking services are often a better deal than nonbank services. If you're not part of the banking system, you're vulnerable to losing your money, getting charged junk fees, or being exploited by predatory lenders.