In today’s modern world, it seems almost unthinkable to live without a bank account. After all, that’s where we keep our money, pay our bills, and manage our finances. However, according to the FDIC, approximately 5.4% of U.S. households (approximately 7.1 million) were unbanked in 2019. So while most of us rely on bank accounts, there are still quite a few people getting by without one.
Why would someone choose not to have a bank account?
There are a few key reasons why someone might choose to be “unbanked”:
- Lack of trust – Some people distrust banks and prefer to avoid them.
- Privacy concerns – Banks require personal information that some people wish to keep private.
- High fees – Minimum balance requirements, overdraft fees, etc. can be prohibitive for lower-income individuals.
- Identification requirements – Some immigrants and elderly individuals lack the ID needed to open an account.
- Credit problems – Past issues like unpaid fees or overdrafts can make it difficult to open a new account.
- Mobility issues – Getting to a branch can be challenging for some unbanked individuals.
- Cultural preferences – In some cultures, cash transactions are preferred over banking.
Many unbanked individuals have had negative experiences with banks in the past or simply believe their needs are better served outside the traditional banking system.
What are the challenges of being unbanked?
Living without a bank account presents some unique financial challenges:
- Difficulty building credit – Without a bank account, it can be much harder to get approved for credit cards or loans.
- Paying bills – Rent/mortgage, utilities, and other bills often need to be paid by check, money order, or prepaid debit card.
- Cashing checks – Check cashing services charge high fees, essentially a “tax” on being unbanked.
- Saving money – Unbanked individuals have fewer options to earn interest and grow their savings.
- Security issues – Carrying large amounts of cash can pose safety issues.
Alternative financial services like check cashing stores, money orders, and payday loans used by the unbanked often come with much higher fees and rates compared to basic banking services.
How do people manage their finances without a bank account?
Despite the challenges, there are ways for people to manage their money without a traditional bank account:
- Prepaid debit cards – These work like regular debit cards but don’t require a bank account. Funds are loaded onto the card ahead of time.
- Cash payments – Paying with physical cash is still widely accepted for purchases and bills.
- Money orders – These can be purchased (for a fee) and used similar to personal checks.
- Check cashing services – Businesses that cash checks for a fee but don’t require an account.
- Payroll cards – Employers can load wages onto prepaid debit cards each pay period.
- Online payments – Many businesses accept online payments through services like PayPal.
- Direct bill pay – Arrange to pay regular bills directly with the billing company.
- Community banks/credit unions – These smaller institutions sometimes have more flexible requirements.
- Stored value cards – Gift cards and other closed-loop cards can be used in place of debit/credit.
With some creative planning, unbanked consumers can cobble together a system using alternative services and cash transactions. However, it requires diligently avoiding common financial pitfalls.
What are the risks of being unbanked?
Relying on cash and alternative services outside the banking system carries a number of risks:
- Higher fees – Check cashing and money order fees can quickly add up.
- Lower security – Cash can be lost or stolen with little recourse.
- Missed payments – Without automatic bill pay, payments may be forgotten or delayed.
- Higher interest rates – Unbanked consumers may turn to predatory lenders and payday loans.
- Less consumer protection – Banks provide more identity theft monitoring, fraud resolution, etc.
- Reduced savings – Less access to interest-bearing accounts makes saving and investing more difficult.
While being unbanked is certainly possible, it often requires paying more for basic financial services and carrying additional financial risk.
What options help bridge the gap?
If being fully unbanked seems too problematic, there are some “middle ground” options that provide an entry to banking:
- Secured credit cards – These require a refundable security deposit and can help build credit.
- Prepaid debit cards – Reloadable cards work like bank debit cards without a checking account.
- Mobile banking – Apps allow remote check depositing and account management.
- Online banks – These have lower fees and mostly digital services.
- Credit union membership – May have more flexible qualification requirements than major banks.
- Government accounts – Cities/states sometimes offer low-barrier government ID accounts.
- Micro savings accounts – Some banks offer basic accounts with no minimum balance.
Products like these can provide entry to mainstream banking while avoiding potential barriers like credit checks, ID requirements, and account fees.
Are there any benefits to being unbanked?
While not an ideal situation for most, there are a few potential upsides to being unbanked:
- More privacy – Banks collect extensive personal information. Being unbanked reduces data collection.
- Reduced debt risk – Without access to credit/loans, unbanked consumers avoid that potential debt trap.
- Less paperwork – No bank statements to file, complex forms to fill out, etc.
- More mindfulness – A cash budget can lead to more deliberate spending habits.
- Insulation from bank fees – No possibility of overdraft, minimum balance, inactivity fees.
- Less stress – Some people find banking intrinsically stressful and prefer avoiding it.
A minimalist who pays in cash and puts savings under the mattress would indeed avoid many modern banking hassles. However, the conveniences and advantages of banking likely outweigh these factors for most.
Should you consider going bankless?
Here are a few key questions to ask yourself when deciding whether to avoid banks altogether:
| Question | Yes | No |
|---|---|---|
| Do I have issues getting approved for new bank accounts? | Being unbanked may be the better option | You can probably find a bank to work with |
| Am I very concerned about data privacy? | Going bankless could give you more privacy | Bank protections likely outweigh privacy concerns |
| Does banking cause me significant stress and frustration? | Eliminating bank hassles may be beneficial | The conveniences likely outweigh the frustrations |
| Am I highly organized and disciplined with money? | You can probably manage the complexities | Relying on banks makes finances easier to manage |
For most people, the conveniences of modern banking far outweigh any potential benefits of living “off the grid.” But for some individuals, going bankless makes personal or financial sense. The key is honestly evaluating your unique situation.
Conclusion
Living without a traditional bank account requires using cash, money orders, prepaid cards, check cashing services, and other alternative forms of money management. While certainly possible, being unbanked also comes with a variety of risks and challenges most would consider unacceptable. Bridging products can provide some banking access while avoiding common barriers. Ultimately, being unbanked is a highly personal choice that works well for some people but is unrealistic for many others. Carefully weighing the pros and cons is key to determining if going bankless could fit your lifestyle.
