When most people think about finances, the first thing that comes to mind is a bank account. After all, a bank account is one of the most common ways to save and store money. But there are some people who choose not to have a bank account. There are a few reasons why someone might not want a bank account, but the most common reason is because they don’t trust banks. Some people also don’t like the fees that banks charge, or they don’t have enough money to justify opening an account. Whatever the reason, there are alternatives to traditional banking that can work just as well for those who choose not to use banks.
One popular alternative to traditional banking is peer-to-peer lending. Peer-to-peer lending platforms like Prosper and Lending Club allow people to borrow and lend money without going through a bank. These platforms are generally much more affordable than traditional banks, and they can be a good option for those who don’t want to use a bank.
Another alternative to traditional banking is using a prepaid debit card. Prepaid debit cards can be used anywhere that accepts debit cards, and they’re a great way to avoid fees associated with traditional bank accounts. There are also some prepaid debit cards that offer cash back rewards, which can be a great perk for those who use them regularly.
There are a variety of reasons why people may choose not to use banks. For some, it may be due to financial difficulties or debt. Others may be trying to hide from abusive relationships. Whatever the reason, people who don’t use banks often face a number of challenges. They may have difficulty accessing credit or obtaining loans. They may also be charged higher fees for services such as cashing checks or money transfers. In addition, they may be at increased risk of identity theft. As a result, people who don’t use banks should weigh the risks and benefits carefully before making a decision.
Some financial institutions have developed products especially for those with bad credit histories. Chime and Wells Fargo are just two of the most well-known national names that provide accounts to anybody who has struggled to open a regular checking account, but it’s also important to compare alternatives at smaller businesses in your region.
If you’ve been avoiding the banking system in order to stay off the grid, it’s possible that you’ve been attempting to stay away from lenders. What should you do? Stop running and seeking help with your finances (you could even find it at a bank). Many banks and credit unions provide essential assistance if you find yourself in a tight spot, according to resources.
“Some of these institutions provide a higher level of value for someone in difficult financial situations or obstacles who is managing their debt,” says McClary. “Many banks and credit unions collaborate with the NFCC to create an immediate connection to non-profit credit counselors.”
If you’re young, you might not see the point in dealing with a regular bank. According to some projections, 33 percent of Millennials believe they won’t require a bank account within the next five years.
But there are plenty of reasons to have a bank account, even if you’re young. For one thing, a bank account is essential for building credit. Without a bank account, you won’t have a way to establish a credit history, which you’ll need when you want to buy a car or a house someday. Plus, a bank account can help you avoid expensive fees and save money. Many banks offer free checking and savings accounts, and some even offer rewards like cash back or points for using your debit card. And if you ever find yourself in a financial emergency, having a bank account can be a lifesaver. With a bank account, you can access your money quickly.
Low-income individuals are the most likely to be underbanked, according to FDIC statistics. Among households earning less than $15,000 a year, 28% lack a bank account and another 22% have only partial access to financial services.
Unemployed individuals, those without high school diplomas, and those under the age of 25 have some of the highest rates of unbankedness. Furthermore, African-Americans, Native Americans, and Hispanics had higher levels than Caucasians and Asians. Only about 5% of employed middle-class Americans are without bank accounts, but more than 20% utilize financial services outside the banking system — usually for reasons of convenience.
It’s one thing for relatively well-off people to pay a fee to cash a check because they are in a hurry, and it’s an entirely different scenario for someone to rely on alternative financial services for all of his or her transactions.
Check-cashing services in New York are permitted to charge 1.91%. If someone with a $15,000 income uses them regularly to cash paychecks, that could cost up to $286 a year. Postal money orders cost $1.15 apiece, so someone using them to pay three bills a month would spend another $41 a year.
The aforementioned fees alone may cost almost $500 each year. Furthermore, the expense of borrowing outside the banking system is exorbitant. A 30-day auto-title loan has an interest rate that ranges from 50% to 100%.
Customers’ lack of financial knowledge is a major problem. The most difficult to quantify is why people leave the banking system because they don’t understand how consumer finances function or how much nonbank alternatives cost. Even though individually, each transaction is relatively inexpensive, collectively they may add up to many times more than a basic checking account price.
People choose not to use banks for a variety of reasons. Some people simply don’t want to deal with the hassle or expense of having a bank account. Others may not trust banks, either because of bad experiences in the past or because they believe that banks are generally untrustworthy institutions. Still others may not have a bank account because they don’t have enough money to meet the minimum balance requirements or because they don’t have access to a traditional brick-and-mortar bank branch. Whatever the reason, there are a number of ways to manage your finances without using a bank.
Although we’ve covered some of the most common reasons people don’t use banks, there are many more reasons why someone might choose to live unbanked. In our next post, we will explore this in more depth and provide solutions for those who want to start banking but face some challenges. Stay tuned!