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What does it mean to be ‘unbanked,’ and what are the costs?

Those without bank accounts pay higher fees for basic financial services. But that’s not the only downside to being unbanked.

Kat Tretina
5 min read

Going without a bank account may not seem like a big deal, but being unbanked can be challenging. Basic tasks like cashing a check can be expensive, and it can be harder to qualify for loans or other forms of credit.

What does it mean to be unbanked? The term refers to individuals who don't have access to checking or savings accounts. Without a bank account, you may face a number of inconveniences and added costs.

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Although the majority of Americans have bank accounts, a significant number are unbanked. According to the Federal Reserve's latest data, 6% of adults, or approximately 6 million people, were unbanked in 2023.

The official definition of "unbanked" is a household without a checking, savings, or money market account at a bank or credit union.

There are many reasons why someone would be unbanked. According to the Federal Deposit Insurance Corporation's 2021 study on unbanked individuals, these were the most commonly reported reasons:

  • Trouble reaching balance minimums: Some banks require individuals to deposit a minimum amount to open an account, such as $100 or more. For those living paycheck-to-paycheck without extra cash, meeting these deposit requirements can be difficult.

  • Lack of trust: Some people have concerns about the reliability and transparency of banks, and also have privacy concerns about how their information is used.

  • Concerns about bank fees: Worries about high bank fees are another issue that deter people from opening bank accounts.

Read more: How do banks make money?

The reasons people go without bank accounts are valid; some banks do have high fees and deposit requirements, so those who are on strict budgets may feel like they're better off skipping the account and stashing cash at home. However, there are some consequences to being unbanked you may not have considered:

When you have a bank account, depositing a check is easy. You can set up direct deposit so your paycheck is deposited directly into your bank account, and you can deposit other checks you receive at an ATM or with your phone.

Without a bank account, it's harder. You may have to visit a check cashing center, which can charge high fees. Depending on the provider, the fee can be as high as 9.99% of the check amount.

For example, if you have to cash a $500 check at a center that charges a 9.99% fee, you'd pay $49.95 in fees. As a result, you'd only get $450.05.

Read more: Can you cash a check without a bank account or ID?

If you don't want to carry cash, which can be risky and cumbersome, prepaid cards can be an alternative to traditional debit cards or credit cards. Prepaid cards can be purchased at convenience stores, grocery stores, and other types of retailers. At the register, you can load your cash onto the card and then use it to pay for items or services, both online or in person.

However, prepaid cards can be pricey. They usually have activation fees, monthly fees, inactivity fees, and more. Here’s an example of some of the fees you can expect to pay with some popular prepaid cards:

Without an established relationship with a bank or credit union, you may not qualify for most loans or credit cards. If you need to take out a loan for an emergency expense or major project, you may have to turn to more expensive options, such as payday loans. These are very expensive, with fees equivalent to annual percentage rates (APRs) of around 400%. Such costly rates can make it difficult to get out of debt.

Read more: Payday loan vs. personal loan: How to decide what’s best for you

Not only do you face extra fees, but being unbanked also costs you in other ways. Without a savings account, for example, your money doesn't have a chance to build interest. Considering that some banks currently pay as much as 5% APY or higher on savings accounts, you could lose a lot of money by not keeping your savings in the bank.

For example, say you have $500 in savings. Every month, you contribute an additional $25. If you keep your money at home, at the end of five years, you'd have $2,000.

Now let's say you have a high-yield savings account that earns 5.00% APY. Assuming interest is compounded annually, if you deposited that $500 and continued saving $25 every month, you'd have $3,953.52 after five years — nearly double what you'd have without an interest-bearing bank account.

Read more: The 10 best high-yield savings accounts available today

Keeping cash at home makes it easy to access your money, but it's risky. Bills can be lost or stolen. And, if your cash goes missing, there's no recourse to get it back.

Plus, most bank accounts are federally insured. So if your bank fails, your money will be protected up to $250,000 per depositor, per institution, per ownership category.

Read more: 6 important security features to look for in a bank

If you don't have a bank account because you’re worried about account requirements or fees, or maybe even live in a banking desert, consider these alternatives.

As nonprofit financial cooperatives, credit unions often have lower account minimums and lower fees, making bank accounts more accessible to people on tight budgets. There are many credit unions with open membership, so you can join regardless of where you live or work.

Online banks don't have the overhead costs of traditional banks, so they're able to offer higher account interest and lower deposit minimums. Open a new account with one of the best online banks to get started.