What It Means to Be “unbanked” (and What It Costs You)

To keep our money safe, most of us have at least a checking account and a savings account. But many Americans don’t have a bank account at all. In addition to struggling with fees or lack of credit history, the reasons for “non-banking” are often related to privacy issues or a general lack of trust in banking institutions.

However, in an economy that assumes you have full access to traditional banking services, living a bank-free lifestyle is not only inconvenient, but completely unaffordable. Here’s what you need to know about going unbanked and how unbanked life comes with its own costs.

What does it mean to be “non-banking”?

Being “non-bank” means that you (and your family) do not have a checking or savings account with a bank or credit union. According to a 2021 Federal Deposit Insurance Corporation survey , about 4.5% of U.S. households are unbanked. Unbanked individuals use alternative means to manage their money, including prepaid credit cards, non-banking online payment services such as PayPal and Venmo, non-bank money transfer or check cashing, and cash.

Why would anyone be unbanked? Well, it might not be their first choice. According to the survey, many unbanked people do not have enough money to meet minimum balance requirements or cannot afford the fees associated with opening an account. Otherwise, some people choose to avoid banks due to a lack of trust in banking institutions or for privacy reasons. If that sounds like you, think about the extra costs you incur living without traditional bank access.

Consider the costs of not banking

The decision to avoid banking costs can result in significant non-banking costs. For example, unbanked individuals are forced to pay high fees for everyday financial services such as check cashing and money orders .

Another important cost of not banking: access to credit. Non-bank loans such as buy here, pay here (BHPH) and payday loans charge outrageously high interest rates. Life without banks means that you live without the main way to get a loan in our world, which affects your ability to do everything from getting a loan to renting an apartment.

Speaking of trust, it would be remiss not to mention that almost all banks are insured by the Federal Deposit Insurance Corporation, better known as the FDIC. (Credit unions are insured by the National Credit Union Administration .) This means your money is safe , at least up to $250,000. Look for the FDIC logo on the windows of the bank teller or at the entrance to your bank branch, or see the list of FDIC-insured banking institutions in the FDIC banking package .

However, if you don’t participate in traditional “big” banks (whether you want to or not), there are alternative financial institutions that can meet your needs. Contact digital and community banks who can help you get started with opening an account.

The bottom line is that the cost of living without banking tends to outweigh the cost of maintaining a bank account. Here is a starter guide to all the types of bank accounts available to you.