Why Are So Many Americans Underbanked?

One in nine American households is without a checking account, and almost one-third of the country’s population is underbanked.

Those numbers might surprise you. We tend to think of underbanked populations in relation to developing countries, but millions of low-income households in the U.S. lack a full range of basic financial services as well.

TIME recently covered this dilemma, exploring how alternative financial services can often cost the poor hundreds of dollars per year, and outlining why so many in America turn away from banks when dealing with their money.

As the TIME article points out, low-income people are the most likely to be underbanked, as 28 percent of households with an annual income of less than $15,000 a year have no bank account, and another 22 percent lack a full range of services. Other demographics that tend to have higher underbanked rates include African Americans, Native Americans and Hispanics, as well as those without high school degrees and those under the age of 25.

The fees associated with using non-banking financial services consistently can be pretty steep. TIME uses examples such as check-cashing services that can cost $286 a year, prepaid card costs that that can run a few hundred dollars deep and loans outside of the banking system that can charge “interest equivalent to an annual rate of 50 percent to 100 percent or more.”

Simply put, it’s often more expensive to function outside the standard financial services sphere. So why do some do it anyway? TIME cites four major reasons.

First, and perhaps most obviously, some services aren’t available everywhere. Banks want to attract profitable customers, and so do not often offer attractive options for people with limited funds. Banks also sometimes opt not to maintain branches in less affluent areas.

Second, time and money come into play. People with long or odd hours often have trouble getting to a branch during regular hours, and others cannot maintain a minimum for an account or cannot wait for checks to clear.

Third, some people – especially immigrants – are prone to distrust banks. Others distrust electronic banking, which makes them miss out on direct deposit and other modern money-saving practices.

And finally, many consumers simply don’t understand the options available to them, or fail to comprehend that although a single transaction may cost little, repetition amounts to significant financial losses.

To read the complete TIME report, click here.