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Millions of Older Americans Are ‘Underbanked’

High fees have kept many low-income customers away from banks, but now some financial institutions are trying to change that


Irma Williams, 58, closed her banking accounts after separating from her husband eight years ago and began living without a checkbook, paying her bills in cash and visiting check-cashing businesses when she needed money.
 
Last month, however, the Nashville office receptionist decided to start using banks again, after attending a workshop — sponsored by Bank on Music City, a partnership between Nashville and the local United Way — intended to help the city's residents establish conventional banking relationships. Williams will be retiring in a few years, and she thinks a traditional banking setup will help her do it. “I’m at a stage where I’m rebuilding, so you need a checking account and savings account to be financially secure,” she says.
 
Millions of Americans Underbanked

Today, a staggering 60 million American adults either don’t have or rarely use bank accounts. More than 25 percent of them are over 45, according to an analysis by AARP Foundation, AARP Public Policy Institute and the Center for Financial Services Innovation, a nonprofit consultancy. People with low incomes, African-Americans and Hispanics are all less likely than the public at large to have bank accounts or to use traditional banking regularly.
 
Instead, the “unbanked” or “underbanked” do what Williams did: They rely on alternative financial-service providers, like payday lenders and check cashers. Many even do their banking at Wal-Mart, where they can pay bills, wire money or sign up for a prepaid debit card.
 
Yet having a traditional bank account is “particularly important for the elderly,” says Sherrie Rhine, a senior economist at the Federal Deposit Insurance Corp. As Rhine points out, the federal government will distribute benefits, like Social Security, exclusively by direct deposit or debit card by 2013. “We don’t want our elderly to keep money in their house or in their purse,” she says.
 
High Fees Discourage Many

Many older Americans who don’t use banks or credit unions say they would prefer to do so, according to the survey, but high fees have kept them away. “In most cases, it was too expensive,” says Elizabeth Costle, consumer team director at AARP Public Policy Institute.
 
And those fees are steadily climbing. The average overdraft fee, for instance, climbed to a record $30.83 in 2011, from $30.37 in 2010, according to Bankrate.com. Also last year, the average cost to use an out-of-network ATM reached $3.81.
 
What's Being Done to Help

Against this backdrop, government agencies, financial institutions and nonprofits are working to make banking more affordable for low-income consumers, including older Americans. The Bank on Music City workshop that Williams attended, for example, is part of a nationwide program in 63 locations.
 
Last year, the FDIC started a pilot program called Model Safe Accounts, in which nine participating financial institutions offered low-cost savings and checking accounts. Early data shows that a high number of accounts opened under the program have remained open, says Rhine, its project manager.
 
FDIC officials hope to broaden their efforts and work with more banks to provide affordable accounts to the underserved, says Ellen Lazar, an FDIC senior adviser.
 
Some banks and credit unions are trying to attract unbanked and underbanked consumers by offering money orders and prepaid cards at lower costs than local alternative financial services firms, says Josh Turnbull, managing consultant at the Center for Financial Services Innovation.
 
For example, Regions Bank, located in 16 states across the South and Midwest, recently unveiled a service called Now Banking. People without bank accounts can use it to cash any check, pay bills, transfer money and make direct deposits using a prepaid card that waives the bank’s standard $5 monthly fee.
 
If high fees have kept you, or someone you know, from using a bank or a credit union, here are three ways to open an account and keep costs down:

  • Look for banks and credit unions that still offer free checking. Some banks waive their checking fees for customers who use direct deposit regularly. Certain Bank of America and Chase locations, for instance, waive their standard $12 monthly checking fees for qualified customers who have their payroll or government checks deposited directly each month. Many credit unions also offer free checking, says Adam Rust, research director at Reinvestment Partners, a nonprofit in Durham, N.C., who runs the Bank Talk blog. The website NerdWallet has a list of 10 banks and credit unions with no-fee checking accounts.
  • Try mobile banking. If you have a smartphone or are comfortable making online transactions, look into Web-only banks with low or no fees and free ATM transactions. For instance, one of the participants in the FDIC pilot program, offers its no-fee Orange Savings Account to low-income, underserved customers in four metro regions: Baltimore-Towson in Maryland; Atlanta-Sandy Springs-Marietta in Georgia; the Philadelphia area; New Jersey-Wilmington, Del., and Seattle-Tacoma, Wash.
  • See if you can get in on the Bank On program. Go to joinbankon.org to find out whether your city is one of the 63 participating in this program set up to provide affordable bank accounts and other financial services to the underserved.

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