The major downsides of being unbanked include:
- High costs and fees: People without bank accounts often rely on costly alternative financial services such as check-cashing services, payday loans, and money orders, which charge high fees and interest rates. For example, check-cashing fees can be several dollars per check, payday loans can have interest rates exceeding 300%, and money orders have limits and fees. This results in significant extra expenses for everyday financial activities.
- Limited financial services access: Without a bank account, individuals lack easy access to basic services like direct deposit, online payments, bill pay, and credit-building opportunities. This exclusion from mainstream financial services makes saving, borrowing, and managing money more difficult.
- Difficulty building credit: Having a bank account is fundamental for establishing credit history. The unbanked face challenges in proving creditworthiness and gaining loans, mortgages, or credit cards, often resulting in reliance on high-cost credit options and limits on housing and employment opportunities.
- Security risks: Carrying and storing cash is riskier than using insured bank accounts, as lost or stolen cash cannot be recovered, whereas bank funds have fraud protections and insurance coverage.
- Social and economic exclusion: Being unbanked limits participation in an increasingly digital economy where cashless transactions dominate. It also perpetuates poverty by hindering wealth building, investing in education, homeownership, and entrepreneurship. There is also social stigma and limited opportunities due to reliance on cash-only transactions.
- Time and convenience costs: Unbanked individuals spend more time and effort managing finances, such as waiting in lines to cash checks or pay bills, which can be inconvenient compared to banking customers.
These overall consequences illustrate the financial, social, and practical burdens faced by people who are unbanked. The lack of access to affordable, safe, and comprehensive financial services creates challenges that affect their economic well-being and security.
