Having a bank account doesn’t always mean you have full access to the financial system. Millions of Americans still rely on check cashing, payday loans, and money orders—not because they want to, but because traditional banking doesn’t fully meet their needs. These people are considered “underbanked.”
Being underbanked can make everyday life more expensive and limit opportunities to save, build credit, or borrow affordably. To address the issue, we need to look at who it affects, what drives it, and what can actually help.
Key Takeaways
- Underbanked households often use services like check cashing and payday loans, which come with high fees and trap people in debt.
- They’re more likely to have low incomes, unstable jobs, and limited access to traditional banking—especially among immigrants, people of color, and low-income families.
- Solutions include better financial education, supporting Community Development Financial Institutions, fintech tools that build credit, and policies that expand access to safe, affordable banking.
How Many People Are Underbanked or Unbanked in the U.S.?
As of 2023, about 4.2% of U.S. households—roughly 5.6 million—were unbanked, meaning they had no checking or savings account. That’s the lowest rate ever recorded.
Meanwhile, 14.2% of households—nearly 19 million—were underbanked. These households had a bank account but still used financial services like check cashing, payday loans, money orders, or rent-to-own services in the past year.
Who’s Most Affected
Higher rates of being unbanked or underbanked are most common among:
- Low-income households
- Black and Hispanic communities
- Single-parent families
- People with disabilities
- Households without reliable internet
Even with expanded access to mobile banking and low-cost accounts, many Americans still rely on costly financial services because traditional banking doesn’t meet their needs.
What does it mean to be underbanked?
So, what exactly does it mean to be “underbanked”? Simply put, it describes individuals or households that have restricted access to standard banking services, including checking and savings accounts.
Being underbanked can result in serious consequences, like challenges in establishing credit and limited financial options. Through comprehension of the problem, we can strive to discover solutions that aid those who are underbanked.
What does it mean to be unbanked?
Being unbanked refers to individuals or households that lack a bank account. This translates to these individuals having no access to the traditional financial services that many of us take for granted.
Instead, they may have to resort to alternative financial services such as check cashing, payday loans, or auto title loans, which come with steep fees and can entangle them in debt.
It’s crucial to understand that being unbanked does not necessarily mean the individual is financially unstable or poor. It could be due to a lack of trust in banks, limited access to banking services, or the inability to meet account opening requirements.
Despite the reasons, being unbanked can pose difficulties in establishing credit, saving money, and utilizing other financial resources.
Who is most likely to be underbanked?
While underbanked households span all backgrounds, certain traits and circumstances show up more often than others:
- Income and job status — Households with low incomes or unstable employment are more likely to be underbanked.
- Access to banking — Many lack access to branches, face high banking fees, or can’t meet minimum balance requirements.
- Use of alternative services — Check cashing, money orders, and payday loans are common workarounds when traditional banking falls short.
- Demographics affected — The highest rates are seen among immigrants, people of color, and low-income families.
How Being Underbanked Can Hold You Back Financially
The negative consequences of being underbanked can significantly impact an individual’s financial stability. A few of these are:
- Difficulty building credit – Underbanked individuals often face difficulties in establishing credit, hindering their ability to secure loans or avail other financial opportunities in the future.
- Limited financial options – Without access to affordable banking services, the underbanked can miss out on savings accounts, credit cards, and loans with better terms and conditions.
- Increased risk of financial fraud – Lacking access to trusted banking institutions, the underbanked may be more vulnerable to financial fraud and exploitation by predatory lenders.
- Obstacles to saving and wealth accumulation – The underbanked may struggle to save money and grow their wealth due to limited access to financial services.
Real Solutions That Help the Underbanked Gain Financial Control
What are the possible solutions for the underbanked? The following approaches can aid in increasing access to financial services and promoting better financial decision-making for the underbanked:
- Financial literacy – Providing financial literacy and counseling can empower the underbanked to comprehend their options and make informed financial decisions.
- CDFIs – Community Development Financial Institutions (CDFIs) work towards providing financial services and opportunities to underrepresented communities and can serve as a valuable resource for the underbanked.
- Fintechs – Online banks, neobanks, and peer-to-peer lending platforms can improve access to financial services for underbanked individuals. Tools like credit builder loans and secured credit cards can also assist in establishing a positive credit history.
- Government action – Government policies and programs exist to help underbanked households, including financial education programs, low-income banking initiatives, and more. These efforts can provide much-needed support to those who are underbanked.
How to Build Financial Stability When You’re Underbanked
Attaining financial stability is a path that requires perseverance and unwavering commitment, but with the right strategy in place, it’s achievable. Here are some practical steps to help you along the way:
- Get a bank account – Look for bank accounts from banks or credit unions that don’t require a minimum balance or minimum deposit, and steer clear of those that charge fees. If you’re a newcomer to the country, don’t fret – there are options for non-residents to open a U.S. bank account.
- Create and stick to a budget – A budget serves as a compass, guiding you through your income and expenses and preventing overspending. Adhere to it as much as possible, and watch as your finances stay on course.
- Build an emergency fund – Emergencies are an inevitable part of life, and having an emergency fund can provide security and steer you clear of high-interest credit options.
- Pay off debt – High-interest debt can slowly erode your savings and impede wealth-building over the long term. Prioritizing debt repayment puts you in control of your finances and moves you closer to stability.
- Save for retirement – The earlier you start saving for retirement, the more secure your financial future will be. Even small contributions can make a big impact over time.
- Invest your money – By investing your money, you’re giving it the chance to grow and generate a passive income. It’s a proven path to long-term wealth creation.
- Financial education – Learning how to manage money helps you make better decisions, avoid costly mistakes, and build long-term stability. Free tools, classes, and online guides make it easier than ever to get started.
By taking these steps, you’ll seize control of your financial future and elevate your financial well-being to new heights.
Final Thoughts
Being underbanked can make everyday finances more expensive and limit access to credit, savings, and opportunity. While the reasons vary—from income and job status to barriers within the banking system—the impact is the same: fewer financial choices and higher costs.
Expanding access to affordable banking, supporting community lenders, and improving financial education can help close the gap. With the right tools and support, more households can move away from high-fee services and toward long-term financial security.
