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Living Without Savings Accounts and Checking Accounts

Nearly 8% of US households do not have checking or saving accounts at a bank or credit union. Almost 18% of households do have a checking or savings account, but that's pretty much where their access to banking ends. These are the individuals who regularly rely on non-bank financial alternatives such as payday lenders and check-cashing services.

The Federal Deposit Insurance Corporation (FDIC) has surveyed the unbanked and underbanked population, which together add up to some 30 million US households. Not surprisingly, they tend to represent the poorer segments of the U.S. population. The problem is, staying outside of the conventional banking system can help perpetuate that poverty.

A Look at Unbanked and Underbanked Households

Nearly 71% of unbanked households have less than $30,000 in annual income. Underbanked households tend to be split between low-income and middle-income households (annual incomes between $30,000 and $50,000); with underbanked households, education is a key variable. Households with at least one college graduate are less likely to be underbanked.

Households that are unbanked tend to believe that they are unlikely to accumulate enough money to justify opening a bank account. Underbanked households use alternative financial services because of speed and/or convenience.

Consequences of Being Unbanked or Underbanked

The FDIC survey suggests that people in unbanked or underbanked households tend to feel that they are stuck outside the mainstream financial system, but this has the danger of becoming a self-fulfilling prophecy.

For example, as low as savings account interest rates can be, there is a substantial difference between earning some interest on your money and paying extremely high interest rates for short-term loans. This difference represents a widening gulf between accumulating savings and accumulating debt. Even modest savings rates can put households on the right side of this gulf.

Check-cashing services, payday lenders, and pawn shops are typically exorbitantly expensive. The nonprofit Center for Responsible Lending says that the equivalent of 400% annual interest rates for payday loans is not uncommon. Defenders point out that these services offer quick and easy access to cash and credit that otherwise might not exist. But the fact remains that if unbanked and underbanked households were able to put what they pay in excessive charges towards accumulating savings, they'd soon have ready access to their own cash at little or no cost.

Key Financial Goals for Any Household

Poorer households face many barriers in building their savings rates, but bank access can be one step towards getting out of the cycle of poverty. It's also notable that education and knowledge play a role in giving people the tools to improve their financial situations.

Unbanked and underbanked households--as well as households with access to the full set of traditional banking services--can take the following steps to move from accumulating debt to accumulating savings:

Aim for positive savings rates. Even a small initial balance will allow you to start earning savings account interest rates rather than paying for expensive credit and can make it easier to save money down the road. Shop for a competitive bank. A household with even a modest amount of savings should not feel excluded from the financial system. Look for no-fee checking accounts and savings accounts with competitive rates at low minimums. Improve financial knowledge. Learning the basics of banking, credit, budgeting, and interest will help you use the financial system to your advantage.