Unbanked

Unbanked

Definition

Unbanked refers to adults who do not use or have access to traditional banking services—no checking or savings accounts, credit cards, or other routine bank products. Unbanked people typically rely on cash, money orders, prepaid cards, check-cashing services, or payday lenders.

Key points

• Unbanked = no use of traditional financial institutions. Underbanked = has an account but still relies heavily on alternative financial services.
• Main reasons: inability to meet account minimums or afford fees, distrust of banks, privacy or documentation barriers, and limited physical or digital access.
• Being unbanked increases financial costs and limits opportunities to build credit and save securely.
• There are targeted programs and policy options to expand access and reduce reliance on costly alternatives.

How many people are unbanked?

• Federal Deposit Insurance Corp. (FDIC): about 5.9 million U.S. households (4.5%) were unbanked in 2021—the lowest recorded in its series.
• Federal Reserve: about 6% of U.S. adults were unbanked in 2022.
• Rates vary by region and state: the South has the highest regional rate; Mississippi reported the highest state rate (~11.1%) and Utah the lowest (~1.2%).

Who is most likely to be unbanked?

Unbanked rates tend to be higher among:
* Lower‑income and income‑volatile households
* People without a high school diploma
* Black, Hispanic/Latino, and American Indian or Alaska Native households
* Working‑age people with disabilities and single‑mother households
Analyses show Black and Latino households are disproportionately represented among the unbanked.

Why people become unbanked

Primary drivers include:
* Cost and account requirements: minimum balances and fees can be unaffordable.
* Convenience and access: “bank deserts,” limited branch hours, and long travel times make alternatives easier to use.
* Distrust and experience with discrimination: histories of predatory lending and unequal treatment reduce confidence in banks.
* Documentation and privacy concerns: recent immigrants or those lacking acceptable ID may be excluded.
* Perceived value: alternative services sometimes offer immediate cash or flexibility that matches users’ needs.
Note: roughly half of unbanked individuals have previously held a bank account, so exclusion is not solely due to unfamiliarity.

Consequences of being unbanked

• Higher costs: check-cashing, prepaid cards, and payday loans carry fees and high interest.
• Limited credit history: difficulty building credit impedes access to affordable loans, mortgages, and other financial products.
• Reduced safety and convenience: cash is harder to protect and harder to use for some transactions (online payments, direct deposits).
• Greater vulnerability to financial shocks and long‑term economic exclusion.

Initiatives and solutions

Public and private efforts to reduce unbanked rates include:
* Financial literacy and inclusion programs (e.g., FDIC’s Money Smart).
* Bank-on initiatives and low‑cost basic accounts that waive or reduce minimums and fees.
* Policy changes to accept a broader set of identification documents so more people can open accounts.
* Government use of prepaid cards for disbursing benefits when recipients lack bank accounts.
* Expansion of community banks, credit unions, and fintech solutions that offer low‑cost, accessible accounts via mobile platforms.
* Stronger consumer protections and limits on predatory alternative financial services.

What helps most

Effective approaches combine:
* Affordable, transparent basic accounts with few or no fees.
* Increased physical and digital access (branches, mobile services, extended hours).
* Outreach through trusted local organizations to build trust and inform potential customers.
* Regulatory measures to reduce predatory practices and allow flexible ID requirements.
* Programs that help people build credit histories and savings gradually.

Conclusion

Being unbanked is a costly form of financial exclusion that disproportionately affects lower‑income and marginalized communities. Addressing it requires practical changes—affordable accounts, improved access, trusted outreach, and policy reforms—that make mainstream financial services a real and reliable option for more people.