If you don’t have a credit union or bank account, you aren’t alone. According to the most recent FDIC survey, “an estimated 6.5% of U.S. households (8.4 million households) were ‘unbanked’ in 2017” and “an additional 18.7% of U.S. households (24.2 million) were ‘under-banked.’ In 2015, an estimated 1.5% of Vermonters (out of a population of 626,299, that’s 9,394 people) were unbanked. 11.6% were under-banked. This is a fairly low rate in comparison to other states, but it’s still a lot of people who live without any or adequate banking services.
Unbanked: An adult who does not use a credit union or bank.
Under-banked: An adult who does not have sufficient access to financial services and products.
Why don’t you work with a bank?
Unbanked adults generally have good reason not to work with a financial institution.
Financial institutions can be intimidating places. They handle a lot of money and tend to be very large, quiet, and serious. They often use a lot of marble or other types of stone in their construction, making you feel like you’d have to have a lot of money to keep your money there. Some people actually feel like they may get in trouble or be looked down on if they go in to deposit small amounts. Immigrants facing language and documentation barriers may experience even greater feelings of intimidation and anxiety.
Many people simply distrust financial institutions. Dishonest banking practices show up in the news frequently enough to make you wonder if your money is truly safe there. Even the honest practices can feel unfriendly—fees being the prime example. I can say, from personal experience, that it feels horrible to get an overdraft fee when you’re already struggling to make ends meet. It can feel like they created fees just to gouge the poor.
Why you should consider using a credit union or bank
For those who live on little, a bank account can feel more dangerous than helpful, so it’s no wonder that they avoid walking through the door. However, banks can be a huge benefit to all people—even people who live on very little.
When it comes to being intimidated by banks, just think about it this way: You may not have a lot of money now, but you will in the future. Nobody is going to make fun of you or get angry at you for walking in the door and asking to open an account, no matter how much or little you have. And if I’m wrong, and they do treat you poorly, walk out the door with your money and find another credit union or bank. As with all things, work only with people who respect you.
It’s worth getting through the front door because, according to the Brookings Institute, “a bank account is a significant factor—more so, in fact, than household net worth, income, or educational level—in predicting whether an individual also holds mortgage loans, auto loans, or certificates of deposit.” This may sound strange at first, but banks allow people to become financially stable enough to do these things by offering the following:
Safety: Cash can easily be stolen, get lost, or be destroyed by house fires. It’s simply safer to have your money in a bank, where it is federally insured.
Stability: Maintaining a minimum balance requires you to save, even if it is just a small amount. With that minimum in the bank, you can keep pushing yourself to save more. Saving, even just a little at a time, helps you become more independent and could help you get to a place where you are not living paycheck to paycheck.
Growth of savings: It’s easier to save money with an account because
- You don’t have your hands on it so you’re less likely to spend it.
- You can have your checks deposited directly into the account and can even have some of your money directly deposited into savings to force yourself to save.
- Most credit unions and banks pay interest or dividends on savings (and sometimes on checking accounts), so you’re earning money just by saving it there. Different types of accounts offer different amounts of interest, some offering much higher rates than others, depending on how much you can save.
- You can talk to your branch manager about how to save money and rely on them for advice that will help you grow your savings and become more financially stable.
Reduced fees: You may associate banks with fees, but there are a lot more fees for those who don’t have a bank account than for those who do. For example:
- Check-cashing fees: Without an account, you will likely be forced to pay a fee for cashing checks, which means that you’re losing a percentage of your hard-earned money. Cashing a check at your credit union or bank costs nothing.
- High interest rates: When you have a relationship with a credit union or bank, you have better access to low-interest loans. Without that relationship, you may be forced to take out a high-interest payday loan or a tax refund loan, which can easily trap you in a cycle of debt.
It is true that credit unions and banks charge fees during certain circumstances, but you have control over that. You can make sure you don’t overdraft by paying attention to what you have in the account and you can speak with someone at your financial institution to figure out how to avoid fees if you need to go below your account minimums.
Help with building/improving credit: Working with a credit union or bank helps you establish financial history. Your relationship with the financial institution will show that you can manage money and will help you stay on top of your bills so that you can create a strong credit history. Your credit union or bank may offer financial education and resources that can help you learn better habits with your money and begin saving and earning more money.
Simpler and safer payment methods: As noted above, cash can disappear easily. If you have a debit card from your credit union or bank, you’ve got instant access to your cash without the danger of losing it. Someone may steal your card, but they can’t use it without your personal identification number.
Why credit unions are a great option for those in lower income brackets
Credit unions are different than banks in a lot of ways. Two important ways they differ from banks is that they are not for profit and they are cooperatives. As a not for profit, they are taxed differently and are often able to reduce their fees and offer better interest rates. As cooperatives, they are overseen by their membership, so they make decisions based on the needs of the members. This type of organization can be more supportive of low-income groups than other organizations.
Credit unions first came into being to meet the needs of lower-income citizens who struggled to pay the high-interest loans offered by banks. Credit unions work as cooperatives, which means that they serve the people who own them and everyone with a membership is an owner. The money one member brings into the credit union goes out to another member of the credit union as a loan. The person who takes out the loan pays interest and the person who brought in the money is paid a dividend. It’s a little more complicated than that, but that is the basic idea and it is a way of keeping money within a local population of people.
So how do you get started?
To get started with banking, when you’ve never done it before, the first step is to find a credit union or bank that you feel comfortable with. Search online, ask your friends, or just pick a local branch and walk in.
Ask them what the minimum deposit amount is to open an account and what types of fees they charge on the accounts you are interested in. If you feel comfortable, tell them what your goals are. For instance, tell them that you want to build your credit, save a certain amount of money, pay down debt, or just become more financially stable. The more you share with them, the easier it will be for them to help you achieve your goals.
Once you have an account, keep in touch with your branch manager, particularly if you have questions about your finances. Your branch manager can be your ally as you learn how to take control of your finances.
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