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Understanding the Unbanked: A Guide by O1ne Mortgage

In this article, we will explore:

• What Does It Mean to Be Unbanked?
• Unbanked vs. Underbanked
• Downsides of Being Unbanked
• How to Open a Bank Account

What Does It Mean to Be Unbanked?

The term “unbanked” refers to individuals who do not have a checking or savings account. According to the Federal Deposit Insurance Corp. (FDIC), about 4.5% of U.S. households were unbanked in 2021, which equates to nearly 6 million households. Without a bank account, managing finances and saving for the future can be challenging. Here’s how you can open a bank account in a few simple steps.

Reasons for Being Unbanked

People may remain unbanked for various reasons, including:

• Opening Deposit Requirements: Some banks require an initial deposit of $25 to $100, which can be a barrier for those living paycheck to paycheck. However, not all accounts have these requirements.
• Minimum Balance Requirements: Some accounts require a minimum daily balance, typically ranging from $25 to $100 for checking accounts and up to $1,000 for savings accounts. There are also accounts with no minimum balance requirements.
• Lack of Access: In-person banking can be difficult without reliable transportation, and online banking may not be an option without a secure Wi-Fi connection.
• Documentation Requirements: Banks usually require a government-issued ID, proof of residency, and a Social Security number or Individual Taxpayer Identification Number. Not everyone has these documents readily available.
• Negative Banking History: ChexSystems tracks negative banking activities like unpaid balances and overdrafts. A poor ChexSystems report can deter people from opening new accounts, but it is possible to clean up this report.

Unbanked vs. Underbanked

While these terms are sometimes used interchangeably, they have different meanings:

• Unbanked: Individuals without checking or savings accounts at banks or credit unions.
• Underbanked: Individuals who have checking or savings accounts but also rely on alternative financial services like check cashing services, money orders, and payday loans.

Downsides of Being Unbanked

Being unbanked comes with several disadvantages:

• Security: Bank accounts offer security features like debit cards, fraud protection, and insurance for your funds. Cash, on the other hand, is vulnerable to loss or theft.
• Check Cashing Fees: Banks typically cash checks for free, while check cashing stores may charge up to 12% of the check amount.
• Inconvenience: Not all retailers accept cash, and using prepaid cards can incur fees without building your credit.
• No Access to Checks or Bill Pay Services: Without a checking account, you can’t write checks or use online bill pay services.
• Difficulty Saving for the Future: Saving large amounts of cash at home is risky and doesn’t earn interest.
• Less Opportunity to Build Credit: Without credit accounts, it’s challenging to build a good credit score.

How to Open a Bank Account

If you are currently unbanked, you can still open a checking or savings account. Here are the steps to take:

1. Research Financial Institutions: Compare online banks, traditional banks, and credit unions. Consider factors like opening deposit requirements, minimum balance requirements, fees, ATM access, physical locations, and customer service reviews.
2. Organize the Necessary Documents: Gather the required documents, which typically include a government-issued ID, Social Security number or Individual Taxpayer Identification Number, proof of address, birthdate, and contact information.
3. Apply and Fund Your Account: Complete your application online or in person. Once approved, make your initial deposit and start using your account. Setting up a budget and automatic bill pay can help you manage your finances effectively.

The Bottom Line

Having checking and savings accounts can simplify managing your finances and achieving your financial goals. Even if you’ve been unbanked or underbanked, it’s never too late to open an account. While working on better financial management, it’s also beneficial to regularly check your credit score and report. You can do both for free with Experian, taking the first step toward strong credit health.

For any mortgage-related needs, feel free to call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with confidence.

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