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The Poor Are Priced Out of Checking Accounts

This article was written by in Banking. 19 comments.


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It’s no surprise that low income families are unbanked or underbanked. The most basic feature of a typical banking arrangement, a checking account, is getting more expensive. The research center within MoneyRates, a sister site to Consumerism Commentary, released its mid-year survey of checking account fees and found that in every major area measured, fees have increased over the past six months.

The survey uses data from the 50 largest banks in the United States as well as from a similar number of small banks, thus it isn’t comprehensive, but it may be representative of the industry as a whole. More than the survey results at any one time, the changes from one survey to the next six months later can accurately describe the banking environment for consumers.

Monthly service fees, among accounts that charge these, now amount to almost $145 each year on average. That puts these accounts out of reach for families living paycheck to paycheck if they do not supplement their everyday spending with the use of a credit card, going deeper into debt each month.

A household could make some sacrifices in other expenses in order to afford a checking account, but they shouldn’t have to. Although it’s increasingly rare to be able to find a free checking account, according to the survey, slightly more than 35 percent of checking accounts do not carry monthly checking accounts.

You’re more likely to find these free accounts by ignoring the big, national banks in favor of local community banks and credit unions. These smaller banks don’t benefit from the type of advertising dollars available to large national banks offering expensive products, so it’s less likely to hear about these banks.

If you’re unable to find a free checking account and must settle for one with monthly maintenance fees, you can still avoid the fees in many cases by carrying a large enough balance. That minimum balance required to waive the monthly fees has also increased over the last six months. You’ll need a balance of almost $4,500 now to avoid the fee, up from more than $3,500 last year. That’s a significant increase that again makes money management more expensive for those who don’t have money saved.

Unless you have several hundred dollars saved in the first place, you won’t even be able to open an account (on average). Te average minimum balance for opening a new account is $408.76, up from $391.41. The good news is that if you do not have this minimum requirement, you will be forced to find banks with better terms if you’re not discouraged from opening an account in the first place.

The best way to avoid these increasing fees is to shop around, as mentioned in the MoneyRates article. Not every bank makes checking accounts this difficult. You have a better chance of finding a fee-free experience at a smaller bank or credit union.

Many online banks also offer free checking, and if you are a student, you have a better chance of finding free accounts even at large financial institutions. Unless you plan on perpetual enrollment in a university, however, you won’t be a student forever and will need to look for other options.

Shopping around is not always an option for lower income families. There may be only one bank branch convenient without reliable transportation, and you can be sure that if a bank believes its customers have few alternatives, it will take advantage of its customers in as many ways possible.

The internet, however, makes choices possible, even for low-income families. Even if computers owned by the poor are a few technological generations behind, and even if low-income families go into debt to afford their internet service, online access is available to more families every year regardless of income. Shopping around online for better banking options can make free checking easier to reach.

Unfortunately, mainstream banking has an image problem within low socio-economic status communities, leading to more underbanked and unbanked households. Until families trust giving their money to a corporation or credit union, choosing instead to use check-cashing outfits and payday loan operations, both much more expensive than mainstream banks but available to customers without savings or without the requirement to turn over money to a company, they won’t be able to benefit from some of the better, less expensive checking account options, even at community banks and credit unions.

MoneyRates

Published or updated August 14, 2012. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 19 comments… read them below or add one }

avatar Investor Junkie

It couldn’t have anything to do with Dodd/Frank could it?

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avatar William @ Drop Dead Money

You’re absolutely right. It’s a pity that people choose not to avail themselves of the options they do have.

I’ve heard of several employers who have started doing payroll into cash cards for those employees for who they can’t do direct deposit. This allows people without checking accounts to bypass the check cashing establishments and use their cards like debit cards.

Does anybody have any stats on how widespread this is becoming? Sounds like a good idea…

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avatar Ornella @ Moneylicious

Employees who have their payroll deposited on cash cards is popular, but I don’t have know the stats. However, you have to have a bank account somewhere and you have to keep in mind that the brick-and-mortar banks are not non-profit. So if they pitched in one area they will try to make it up in other areas, especially since there’s been changes with NSF. I think what’s important is to realize that any type of account is considered a product for the bank. Online banks get bypass charging fees on checking account because they don’t have the same overhead expenses as a brick-and-mortar. I’m not for charging any fee to bank with any bank, but you just have to know the rules and discover which bank could be the right fit for you.

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avatar qixx ♦1,895 (Half-Dollar)

My company offers the payroll cash card option. There are no fees to use it. It might help that the company i work for owns a bank. I’ve never seen anyone who uses this option but it is there.

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avatar krantcents

My experience through teaching personal finance in a low socioeconomic school taught me that unfamiliarity with banks affect the poor more than anything. Very few, if any families use the financial system. They are on a cash basis as part of the underground economy and do not trust the financial system.

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avatar Investor Junkie

Interesting comment. You could also say the same about law enforcement.

What are the reasons they don’t trust banks?

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avatar A Blinkin

I’ve seen a combination of reasons why this group doesn’t trust banks but I’ll mention 2..
1. They think banks should pay them for their money. They understand the basics of a bank lending other people their money; but they don’t realize that their $20 checking account isn’t profitable. (They also don’t realize the modern conveniences of banking)
2. They have had a series of sour experiences with banks. Most likely, the accounts weren’t explained properly OR the fees weren’t disclosed. This consumer then thinks the bank is simply taking their money.

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avatar Christian Ostmo

Well if the either one of those in the second comment were true then the bank is simply taking their money. I had some family who banked with Wells Fargo at a point when they were experimenting with their fees. Wells Fargo can change their fees at any time with little to no notice. Several of my family members lost a considerable amount of money over a period of time without even realizing it. While you can’t always blame the bank for an ill-informed consumer, banks often don’t take any effort to inform them(even so much as an email or notice on a bank statement), which in my mind is just as heartless as stealing.

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avatar Squeezer @Personal Finance Success

Many banks will waive fees on checking accounts with a monthly direct deposit. However, the poor person’s employer must offer direct deposit (some small businesses do not). Local credit unions are another option. Mine has a totally free checking account with a $25 deposit into the credit union’s savings account. However, to open any checking account the individual must not have any bad marks against him or her in Chexsystems.

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avatar jim

ING direct has free checking.

Seems that most big banks have various ways to get the fees waived, minimum direct deposit, minimum balance, minimum average balance are all usually options to get it waived.

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avatar Ceecee ♦53 (Newbie)

When I worked with welfare clients, almost none had checking accounts. They did use check cashing outfits. If they were lucky and knew a shopkeeper well, they might cash the check for them. The only people I know now that do not have checking accounts also do not have computers, so online banking is not an option either. One friend uses money orders, which are quite cheap in some places. But you still need to cash a paycheck.

I tried to cash a check for a friend of mine a few months ago. It was written by the State of Florida. I had enough money in the bank to cover the amount many times over. Even the manager gave me a hard time. I thought they were actually gonna frisk me. Finally they cashed the check………

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avatar Lance @ Money Life and More

If you look at your local options you should be able to find a free checking account somewhere unless you live in a very small community. Try the credit unions and local banks first as Flexo suggests. I refuse to pay for checking and will close any bank account that tries to charge me for the pleasure of doing business with them.

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avatar david

its pretty simple. bigger banks have larger operational cost.

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avatar A.Bundy

more like mismanaged operational cost. i have at least 4 chase branches within a 10 block radius. they have branches on the most ritziest streets in nyc. nuff said.

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avatar Mike

I doubt the poor have any money to even put into this accounts. It all goes to pay their bills and debts.

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avatar take_flight

I think education is the best medicine in this situation. I could go on and on about people I have seen make huge mistakes with banks, but maybe public school systems or social service agencies should take the helm here and educate people about their choices. Maybe even a non-profit. Going to a check cashing outfit is never the way to go with their exorbitant fees, I know someone who used one of these services for years.

When my husband started his current job years ago, the bank that his paychecks were drawn from charged him $10 to cash his paycheck unless he opened an account. He opened an account and is cashing his checks for free. They also charge 50¢ to swipe your debit card, but you can get around that by simply saying “credit” when swiping your card…again free. To find out about these options, all we had to do is go to their website. We also use ING for savings, which is always free no matter your balance, as is their Electric Orange Checking interest bearing checking accounts. Even the “poor” can have access to internet, maybe through a friend or library. Education.

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avatar Kent @ MoneyEducate

Thanks for a great article. Many people don’t understand the challenges of poverty. I counsel many there, and not only do they pay a lot in regular bank charges, and payday loan places, they make a simple checking mistake and get killed on many hundreds of charges.They give up and go to cash transaction, paying bills at bill paying centers, have too much cash on hand for security risks and fast food and the like- and run out of money before the end of month. Most financial institutions are focused on helping the well off or those doing pretty well, but not have good banking arrangments and skills keeps many in poverty.

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avatar Christian Ostmo

This was a bit surprising to see. I do my banking through US Bank which is a large national bank. Although I’ve had the account for years and never had another one, it has never come with any fees. I needed $100 to start and from there it couldn’t be more simple – keep your account above zero. I have since opened savings and business checking accounts, all with the same terms. I guess I know now not to get rid of the account.

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avatar Cejay ♦1,521 (Half-Dollar)

I work in a recyclinng center and recently had to stop paying cash and pay check for each transaction. I have seen the poorer of the customers start selling their products to anyone who will give them cash and at a substantially lower price. All because they do not have a checking account and a $12.00 check is not worth cashing when you lose $5.00 per check. It is so sad that they are all brought to this level because they have no checking account.

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