Bank Accounts: Some People Do Without, But Not Always by Choice

Imagine it's payday at your job. (That should be a pleasant thought.) Your boss hands you either a pay stub, because you have direct deposit, or a real paper check that you take to the bank and deposit, maybe in exchange for some cash. You then write whatever checks are needed to pay your bills and use the cash, or your checks or a debit card, for purchases.

This may sound like the usual procedure for payday. But for many people - those without bank accounts - there's a completely different scenario. They still receive checks, but now they have to find a place to cash them. Then they have to find a way to pay their bills. And if they don't immediately spend all their money, they have to figure out what to do with what's left.

People who aren't employed, of course, don't have to deal with this. But for those who work but don't have bank accounts it's the only way to turn that piece of paper they get every week into money they can actually use. And it's been estimated that as many as 70 million people in the United States are in this situation.

It may be hard to fathom why someone wouldn't want a bank account. Those who choose to go without cite mistrust of the system and inadequate funds as the main reasons; they worry that they'll be charged extra fees if they don't maintain a minimum balance or if their account becomes overdrawn. And in many cases their fears are based on experience; about half of those currently without accounts did once have them.

But there's also a large number of people who just can't get accounts. The biggest reasons given here are poor credit (banks usually check credit scores before approving accounts) and the inability to provide the identification necessary to open an account. There may also be a problem with lack of access; financial institutions aren't that common in some areas, especially poorer ones.

What are the alternatives, then? The most common is the check cashing service. These businesses will not only cash checks, but they may also offer bill-paying services and wire money out of the United States - something which many banks don't do, but which is important to immigrants supporting families in other countries. These services do have their disadvantages, mainly in the area of costs - cashing fees can range from 2 to 10% depending on the kind of check being cashed. But many people prefer knowing the fees - and paying them - upfront rather than worrying about potential, and possibly unforeseeable, charges from a bank.

Of course, after the check's been cashed there's the question of what to do with the money. The person can carry it around, but that's dangerous. They can hide it at home, but they risk losing all of it if there's a fire or burglary. In fact, many local thieves are at their busiest on known paydays because they've learned to identify people who are most likely to be carrying or storing lots of cash.

Some employers have come up with their own option in the form of a debit card. On payday the employee's pay is added to the card's balance, and the employee can use the card the same as anyone else would. The difference is that the card isn't tied to a personal account. Also, these cards are usually not as well protected as those from bank accounts, and many aren't free.

Banks, with the help of the FDIC, are now starting to notice this problem. They're taking action to recruit new customers by trying to reach these people through their communities. New banks or branches are sprouting up in areas that have been traditionally underserved. Bank employees are being hired for their ability to speak more than one language. And there's an effort being made to include financial education - for example, how to manage a bank account and how to save money - as well as financial services. Also, some financial institutions now have the ability to wire money out of the U.S.

The biggest suggestion being made for new bank account holders is to start with debit cards. These cards have an advantage because they have no "float time" - in most cases the transaction is immediately approved or declined based on the current balance, which can do a lot to prevent overdrafts. This may be easier for people just learning how to keep track of their money - especially if they don't have much. Once they get used to balancing their account they could consider getting checks if they really need them.

There will always be people who can't or won't get an account. But the others will probably find themselves the recipients of more "user-friendly" financial services. Banks are now realizing that it's worth it to make the effort to reach those people who are currently "outside the system." After all, a new account customer may eventually become a loan customer.