Second-chance checking re-opens doors to banking

Going without a bank account isn’t so uncommon, but it’s a potentially expensive predicament.

According to a 2015 survey by the Federal Deposit Insurance Corp., nearly16 million adults in the U.S. are “unbanked” — meaning they don’t use a traditional banking institution. Without access to services such as free deposits and withdrawals, many turn to costly check-cashing stores or high-fee prepaid debit cards.

But some banks and credit unions offer a more affordable alternative:second-chance checking. These fresh-start bank accounts might not have all the services of a standard account. If you’re eligible, though, a second-chance account could save you hundreds of dollars per year and get you on the path to full-featured banking.

Not having a bank account is expensive

Esperanza Botello of Sacramento, Calif., found it hard to get ahead because of the constant low balance fees charged by her account at a large, traditional bank.

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“Every time I went to the bank, they kept saying my balance was lower than the money I put in because of this fee or that fee,” Botello said through an interpreter. She eventually closed her account and went without one for about a year.

But not having a bank account can be expensive, too. Botello paid for basic services like check cashing, which can cost as much 10% of the value of a check.

According to aNerdWallet study, the costs of being unbanked can include the following:

• About $200 per year for check cashing and money order services
• An average of $298.50 per year in cash-loading fees for prepaid debit card users

Eager for a change, Botello attended financial literacy classes and learned she could ease back into mainstream banking. She eventually opened a second-chance checking account at a local credit union. “Now I’m not charged as many fees, and I keep more of my money,” she said.

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Second-chance checking is a first step

Second-chance checking accounts are also ideal for people who have had accounts closed in the past because of writing bad checks or having excessive negative balances, but are now paid up and want to open a new account. 

However, if an individual has a record with ChexSystems — a reporting agency that tracks consumers’ mishandling of checking and savings accounts — a new bank or credit union might not be willing to open a regular account. Second-chance checking is an alternative.

The accounts might not have the same benefits as regular bank accounts. Mandatory monthly fees are common. Financial institutions might also require customers attend financial literacy classes as a condition of opening an account.

However, customers who keep their second chance account in good standing for a year can often apply for a regular one.

Botello says her second-chance account limits the amount of money she can spend in a given period, but she doesn’t mind. “It helps me budget my money and be more disciplined,” she said.

Where to find a second-chance checking account

To apply for second-chance checking, start by searching online for banks and credit unions in your area that advertise them. Pay attention to limits and fees. The best second chance checking accounts have no monthly minimum balances, low or no monthly fees, free check writing and online bill pay.

Financial literacy nonprofits also match people with banking services, says Laura Scherler, director of financial stability and success at United Way Worldwide. The financial literacy classes Botello attended were sponsored by United Way’s Bank On literacy program. 

Having a negative bank history doesn’t mean having to go without a bank account. Second-chance checking is designed to help people re-enter the banking system and break the cycle of high fees that drain your money when you need it most.

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Margarette Burnette is a staff writer at NerdWallet, a personal finance website. Email:mburnette@nerdwallet.com. Twitter:@margarette.

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