Underbanked | Definition

/ˌəndərˈbaNGkt/

Underbanked adults refer to those who have a bank | loan | bond | fund | spac | debt | loan | atm | definitions account | expense | economy | pension | bitcoin | 401(k) | lender | wealth | return | grant | asset | check | fafsa | will | wage | fdic | definitionsbut rely on financial services outside of their bank, which can include predatory lending services such as check cashing stores, payday loans, pawnshops, and more.

Next word Stocks | Definition ᐳ

Did You Know

Being underbanked can be very detrimental to your long-term financial growth. Underbanked services come with high rates, and paying these high rates will make it difficult to accumulate wealth over time. Therefore, if possible, try to implement practical financial habits to improve your chances of bettering your financial position.

Some people assume that everyone has a bank account, but many people that have an account don’t use it. There are millions of people who choose not to use bank accounts. These people are underbanked, but what does it mean to be underbanked? How can someone become fully banked?

 

Underbanked means an individual has a bank account. But, they primarily use cash, alternative financial services (AFS) such as money orders and payday loans, and prepaid debit cards for their financial needs instead of traditional financial services such as credit cards and debit cards. Many factors lead to someone being underbanked, which are out of the individual’s control.

 

Why Are People Underbanked?

 

woman signing paper

Image Credit: Ground Picture / Shutterstock.com

 

There are many reasons someone might be unbanked.

 

1. Lack of Access to Traditional Banks

 

When there is a lack of access to traditional banks, it could mean a person is living in a “banking desert.” These are certain neighborhoods where no banks exist--or they don’t have regular access to a bank. Depending on an individual’s ChexSystem Report--a report used to determine someone’s bankability—they might get higher fee bank accounts, making it more difficult to access bank services.

 

2. Minimum Balances and Fees

 

Unlike Alternative Financial Services (AFS), banks often have minimum required balances. Many underbanked individuals feel like they can’t meet those requirements regularly and have been hit by so many fees they choose not to use banking services. Instead, they turn to more costly but easily understood AFS.

 

3. Banks Are Inconvenient

 

If a person needs their money quickly, and banks are too far or open at an inconvenient time, they may refrain from visiting banks too often. Not being able to get to a bank while they are open is essentially the same as not having access to a bank.

 

Recommended Read: Challenges Faced by the Unbanked and Underbanked

 

Who is Underbanked?

 

By definition, an underbanked person has a bank account but doesn’t always use it. According to a Federal Deposit Insurance Corporation (FDIC) unbanked and underbanked survey, 62% of underbanked individuals use AFS. In comparison, the other 38% use a bank only sometimes. An underbanked individual is generally from a lower income bracket. Racial and ethnic differences were also noticeable at all levels, with White individuals being fully banked more than Black and Hispanic individuals. 

 

Recommended Read: Rising Inflation is Causing More Homelessness

 

The Money Wrap-Up: How Being Underbanked Affects Your Finances

 

Being underbanked can be very detrimental to your long-term financial growth. Since underbanked individuals use check cashing companies, payday lenders, and other alternative financial services, they are subject to high fees and predatory practices that make it hard to accumulate wealth. In addition, not keeping your money in an FDIC-insured financial institution means you can be subject to theft.

 

Solutions for going from underbanked range from practicing financial habits to making minimum balances more accessible to petitioning your local bank to be open later. Whatever the solution, the financial rewards for being fully banked can make it worthwhile for underbanked individuals.

 

Main Image Credit: fizkes / Shutterstock.com

Download the CapWay App

Access more features to your Money Account

  • Money Goals
  • Request Money
  • Categorize Spending
  • Money Talk

The CapWay, Inc Debit Visa Card is issued by Metropolitan Commercial Bank (Member FDIC) pursuant to a license from Visa U.S.A. Inc. “Metropolitan Commercial Bank” and “Metropolitan” are registered trademarks of Metropolitan Commercial Bank ©2014.

1. For Money Account holders with a negative balance, the CapWay debit card will go into freeze until funds are deposited to bring account back to current. See terms and conditions

2. Sending or receiving money from other CapWay account holders will be instant. Transfers from other accounts could take up to 48 hours, depending on the financial institution.

3. Early access to funds requires direct deposit. Early payment is not guaranteed and is dependent on the timing of payer's submission of deposits. We generally post such deposits on the day they are received which may be up to 2 days earlier than the payer's scheduled payment date.

4. Money Goals allows account holders to save money towards financial goals created within the CapWay platform. Funds can be transferred from your Money Account or saved through the rounding up of your transactions from purchases.

5. CapWay offers financial content through Learn Money free of charge, but may include advertisements through affiliates. Phunds, CapWay's literacy program and session, is paid content or co-branded content.

© 2019-2023 CapWay Inc. All Rights Reserved.