I didn’t get my first real bank account until I was in my mid-20s. The whole process of getting one just felt overwhelming. I eternally regret not getting one when I was 18.
Getting a back account earlier in life would have helped me learn more about being financially responsible. When I started college way back in 1994, I did have a bank account.
I just couldn’t deposit any money into it. An academic stipend was periodically and automatically deposited into it from time to time.
I was accepted into an academic aid program that had facilitated such a process. The money was used to pay for my textbooks and travel fare. So, the process was taken care of for me.
Even if I did have a bank account, I didn’t have much money to put into it. But that is not the point. I waited too long to get a bank account for no reason.
It doesn’t matter how much money you possess. It what you do with it that matters in the long term.
However, this is easier said than done for far too many Americans. Many have never had a bank account. Or, they just don’t make enough money.
The Unbanked and Underbanked
According to the FDIC National Survey of Unbanked and Underbanked Households, a study that was conducted in June 2017, over 25% of American families were, “unbanked,” or, “underbanked.”
About 6.5% of people have never owned a bank account or were unbanked. Underbanked individuals, about 18.7 of people, have bank accounts but rarely used banks.
That accounts for over 32.6 million Americans. Even though this estimate is reportedly the lowest number of unbanked and underbanked Americans ever, it is not an insignificant amount.
So, why do so many Americans live without bank accounts? About 30% of unbanked people don’t trust bank services. Another 9% said they didn’t live near any banks.
Underbanked individuals may have a bank account, but they utilize non-traditional financial services to conduct personal business.
They rely on payday loans, auto title loans, and pawn shop loans to get quick cash. They pay their bills via check cashing services, money orders, and money transfers.
A primary reason people may not deal with traditional banking services is a lack of financial literacy too.
So, why is not having a bank account a problem? It is just too expensive to transact or pay your bills without a bank account.
The Costs of Not Having a Bank Account
Ironically, people who make less than $15,000 annually, about 30% of unbanked people, end up paying the most for not having a bank account.
Money orders can cost anywhere from 90 cents to $10, or more, depending on where you buy them. Then there is a fee to process them. Using money orders for a year could cost over $100 annually.
If you use cashiers’ checks and money orders you could end up paying hundreds of dollars annually in processing fees. Pawn shop interest rates can be as low as 30% and as high as 300%.
Payday loans require a bank account and have interest rates as high as 37%. If you have bad credit, predatory payday lenders can charge as much as 1,000% interest.
Bank Account Fees are Moderate to Free
Most bank account have a monthly maintenance fee of $10 to $12 monthly. Some are free.
Many online banks, like Ally, Chime, Discover Bank, and Axos, have zero fees. You can use a money order, wire transfer, direct deposit, or check to deposit money into online accounts.
Having a bank account will save time on running errands, help you organize your finances easier, and will cheaper in the long run in terms of fees.
Read More
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.
