Who Are the Unbanked & Underbanked?


The Federal Deposit Insurance Corporation (FDIC) 2021 Survey of Household Use of Banking and Financial Services found that 4.5 percent of households were unbanked in 2021. This figure is the lowest recorded since the survey started in 2009. 

People who do not use mainstream financial services, such as checking or savings accounts, and primarily conduct transactions in cash when using alternative financial services like payday lending or check cashing, are considered unbanked. Households that are “unbanked” do not have anyone that has a checking or savings account at a bank or a credit union, according to the FDIC definition. 


There are three primary barriers that prevent lower- and moderate-income workers from becoming banked:

  1. Financial Barriers

  • Believe they do not have enough money to maintain a bank account
  • Distrust of banks (sometimes due to a negative previous experience with a bank) or desire to maintain privacy
  1. Social Barriers

  • Lack desire or need to establish an account
  • Absent role models; don’t know anyone who participates in the mainstream financial system
  1. Institutional Barriers

  • Inconvenient bank locations and hours
  • High bank account fees
  • Needed products and services are not offered by banks
  • Poor credit history or negative ChexSystems status (a check verification database that financial institutions use to assess the risk level of potential customers) 
  • Personal identification and documents required to open an account 



Some workers that have bank accounts are considered underbanked. Characteristics of underbanked workers who can benefit from asset development strategies, such as budgeting, saving, and investing, include workers who: 

  • Accrue overdraft and other unwanted fees by having accounts that they do not understand or do not match their needs
  • Do not participate in direct deposit
  • Lack 3-6 months savings for emergencies
  • Do not have retirement savings, college savings, and/or other necessary long-term savings
  • Do not own a car or home



Workers without bank accounts conduct the majority of their financial transactions in cash through alternative financial services (AFS). AFS are any financial services offered outside of traditional banking institutions. Many of these services are used by lower- and moderate-income workers because they offer advantages that traditional banking institutions do not. Examples include payday loans, money transfers, refund anticipation loans/refund anticipation checks, and non-bank check cashing. Money orders are the most frequently used AFS. 

Payday loans are small, short-term loans offered to lower- and moderate-income individuals who can prove an employment history. Unlike loans from traditional financial institutions, these loans are quick and easy to get. They are often used to pay outstanding utility bills and other ordinary living expenses such as rent and groceries. Payday loans are usually offered with a very high interest rate, which can lead to long-term debt for borrowers. 

Fee-based check cashing services allow workers without bank accounts to cash checks for a 1 to 4 percent fee. Check cashing firms are often convenient for residents to access in lower-income neighborhoods. While the fees may seem low, workers with limited earnings cannot afford to giveaway any part of their income. 

According to the Financial Services Network, financially coping and vulnerable householdsdefined as those who struggle to save, spend, borrow, and planpaid $255 billion on interest and fees for everyday financial services in 2020. This is nearly 85 percent of all fees paid that year. 

Using these financial services also brings the indirect cost of being unable to build a credit history, which can negatively affect the ability to get a car loan, rent an apartment, qualify for a down payment on a home, and can even influence potential employers. The FDIC 2021 Survey of Household Use of Banking and Financial Services finds that the share of households that used nonbank money orders and check cashing, the most commonly used AFS, has decreased by half in the last ten years. 


Unbanked and underbanked workers may not be familiar with the advantages of not relying on AFS. There are three primary benefits to being banked:

  1. Protection

  • Safeguard against theft and fraud through financial institutions
  • Reduce vulnerability to discriminatory or predatory lending services – the practice of making high-interest loans to borrowers so they are unlikely to be able to repay the loans
  • Increase access to lower cost loan options
  1. Accessibility

  • Conduct basic financial transactions, like using checks to pay bills or debit cards for transactions and ATM withdrawals
  • Establish a credit history to increase the ability to have applications approved for competitive interest rates for credit cards and loans, rental housing, and car and home purchase
  1. Accumulation

  • Plan for an emergency or long-term financial security in a safe, federally-insured savings vehicle that has the ability to gain interest
  • Expand opportunities to grow assets and build economic security by saving hundreds of dollars spent on alternative financial services



The latest