Personal Finance 

Financial Options for the Unbanked

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Checks CashedOne of the issues that has been coming up lately in the world of finances is that of consumers who are “unbanked.” The unbanked are those who do not use banking services. They don’t keep their money at regular financial institutions, and they may not be interested in getting an account for various reasons, ranging from being unable to maintain a high minimum to all of the fees.

However, it becomes necessary for many to interact with some sort of financial services provider, since many of the unbanked still have paychecks to cash. Some of the options available to the unbanked, though, are not very palatable.

Unbanked: Still Paying Fees

Many major retailers now offer check cashing services. You can have a paycheck cashed at Wal-Mart or Best Buy, usually for a fee. (Although Wal-Mart’s flat fee of $3 is definitely among the most generous.) Additionally, there are check cashing places that will also help the unbanked get cash for their paychecks. However, the transaction costs can be between 2% and 4% of the check, eroding how much is taken home.

On top of that, these services don’t offer the option to save some of the money, or to borrow money at a reasonable rate. The unbanked are often forced to go to payday lenders and car title lenders in order to get financing when they need it. That can be problematic, due to the high interest rates. It’s very difficult to make financial progress when you’re unbanked, unable to effectively save, and paying very high rates of interest on your loans. This type of existence will never allow the unbanked to move forward financially.

Prepaid Debit Cards

One of the options that is rising in popularity for the unbanked is the prepaid debit card. A prepaid debit card comes with a host of fees as well, but it is a little more flexible in some ways. It is accepted like a credit card, so there’s no carrying around large amounts of cash. Additionally, many prepaid debit cards allow direct deposits, so there is no check cashing needed.

Indeed, prepaid cards like those offered by Green Dot and American Express carry relatively low fees. And, even though the Suze Orman card has received a lot of flack, it is to be commended for offering an “emergency fund” option, allowing users to save some of their money (even though they won’t earn a yield). For someone who can’t qualify for a bank account, and is unbanked in this way, a prepaid debit card can bridge the gap. However, prepaid debit as banking is a last resort — not something that the “banked” should switch to because they’re unhappy with their bank fees.

Credit Unions

One way the unbanked can take some power, and get access to a host of financial services without paying a lot in fees is to consider credit unions. Low account minimums, and low fees mean that it is sometimes possible for the unbanked to transition to a financial institution. Additionally, it is worth looking into community development credit unions. These are credit unions that have the aim to specifically seek out the unbanked — especially those with low incomes — and help them find a home for their money. Many of these types of credit unions also offer financial counseling and helpful money management classes.

When you are unbanked, you do have options. Unfortunately, few of them are ideal. If you look around, though, it’s possible to limit your costs, and possibly find help for your situation.

(Photo: Steve Rhode)

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4 Responses to “Financial Options for the Unbanked”

  1. Don’t forget the “banking” that comes from pawn shops. For much of human history, shops like these were the primary way that people raised money when they needed it.

  2. The problem here is that the unbanked are paying even in the absence of fees. Cash has a way of disappearing more quickly than checks or even debit card funds. Cash doesn’t lend itself to accurate budgeting and recording keeping. Being unbanked is simply one step closer to financial ruin.

  3. Jodie says:

    There’s a movement of banks to create products for the unbanked and underbanked called Bank On. Most major cities have a coordinated effort between nonprofits, banks and local government.

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