What Does It Mean to Be Unbanked?

Unbanked Definition and Examples

Individuals or households who are unbanked do not access bank credit or other mainstream financial services like checking and savings accounts. They do, however, often use alternative financial services (AFS) like paycheck advances or money orders. The reasons for being unbanked vary, including mistrust of banking institutions and high fees. Mobile banking, which has become ubiquitous for its convenience, has been touted as having the potential to drive banking among the unbanked.

• Related term: Underbanked

Underbanked describes someone who may have a checking or savings account at a bank but also uses an AFS. These services can be expensive, and they’re often used by individuals with lower incomes. Underbanked individuals are classified as such because bank credit and services do not fully meet their financial needs.

Both banked and unbanked individuals may use services like reloadable prepaid cards to receive direct deposits, make purchases, or withdraw from ATMs. But unbanked individuals do not use debit or credit cards, nor do they have retirement or any other accounts at a financial institution.

Who Is Unbanked or Underbanked?

A 2021 Federal Reserve report on the economic wellbeing of U.S. households noted that 5% of adults in the U.S. did not have a bank account in 2020, while 13% were underbanked, meaning that they had a bank account but had also used an AFS like a money order or payday loan. Conversely, 81% of adults were fully banked, owned a bank account, and did not use a service like a money order.

The report showed unbanked and underbanked rates were higher among individuals with lower income and less education, though 1% of adults who earned $50,000 or more in 2020 were also unbanked, according to the Fed’s report. It also showed that unbanked and underbanked rates were higher among Black (13%) and Latin Americans (9%) than for White and Asian Americans (both 3%).

An earlier study conducted by the Federal Deposit Insurance Corporation (FDIC) in June 2019 found that 5.4% of U.S. households (7.1 million households) were unbanked. The other 94.6% of U.S. households were either fully banked or underbanked.

Unbanked rates were higher among Black, Latin American, American Indian, and Alaskan Native individuals, according to the report. When looking at education level, the report found that only 37.1% of households without a high school diploma used bank credit compared with 87.5% of households with a college degree. According to the FDIC report, the No. 1 reason for not having a bank account in 2019 was because U.S. households were unable to meet minimum balance requirements.

The states with the highest percentages of unbanked individuals in 2019—7.6% or more of the local population—included New Mexico, Texas, Oklahoma, Louisiana, Mississippi, Tennessee, Alabama, and Connecticut.

Initiatives to Make Banking More Accessible

Unbanked rates have fallen each year since 2011, but the federal government still has several initiatives to encourage banking among unbanked or underbanked groups. In June 2021, the FDIC announced a “tech sprint” to challenge participating banks to find resources and tools that could encourage more people to bank.

Some economics experts have proposed ideas for the unbanked, such as finding alternative ways to bank through other government entities like the post office. One 2021 study from researchers at the Federal Reserve and Dartmouth College even found that limiting overdraft fees boosted bank account ownership.

Some nonprofits, including New York-based economic justice group New Economy Project, have also called for expanding consumer protection legislation and banking access for underserved populations, such as people who are undocumented or experiencing homelessness.