Why Are One Quarter of Americans Unbanked or Underbanked?


From security to interest income to everyday convenience, bank accounts offer a number of important advantages. Why then do 17 million Americans lack access to any type of formal bank account?

First and foremost, let’s take a closer look at the terminology, which is widely used by the FDIC and the finance industry but not necessarily by those to which the terms actually apply.

  • Unbanked households are those that lack any kind of deposit account at an insured depository institution.
  • Underbanked households are those that hold a bank account but may also rely on alternative financial service providers such as payday loans and check-cashing services.
  • Fully banked households have a bank account of some kind and have not recently relied on any alternative financial service providers.

According to a 2012 study by the FDIC, 28.3% of U.S. households are either unbanked or underbanked. One in five households (20.1%) fall into the underbanked category, meaning that they have some access, while one in twelve households, or 8.2%, are completely unbanked. When it comes to specific accounts, 29.3% of households do not have a savings account and 10% do not have a checking account.

One common assumption is that the lack of bank accounts has something to do with physical access, making this issue more common in rural areas. In reality, though, the largest share of unbanked households is actually concentrated in urban areas. Meanwhile, the largest share of households with bank accounts is in suburban areas.

From a demographic standpoint, data shows that the more money you make, the more likely you are to have a checking and savings account. Similarly, the more education you have, the more likely you are to have both a checking and savings account. To illustrate that, while 25.8% of U.S. households with no high school degree are unbanked, just 1.1% of households with a college degree are without bank accounts.

Education and income levels certainly make a difference in whether or not individuals use banks. But what reasons do the individuals themselves give for avoiding the bank? According to the FDIC’s data, the most common reason unbanked households cite is that they do not believe they have enough money to open an account. The second most common reason for avoiding the bank is that they simply “do not want an account.” This could be for a number of reasons, from general distrust in financial institutions to avoiding associated service fees.

It should also be noted that households that have had an account in the past are less likely to report that the “do not need or want one.” In other words, many of the people who purposely avoid banks have not actually had any real experience with a financial institution, and may not fully understand how the process works.

A number of programs are now in place to help unbanked and underbanked Americans gain access to checking and savings accounts. One such program is the National League of Cities’ Bank On, in which local officials work with financial institutions and community organizations to connect unbanked citizens with personal finance education and financial services.


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