For many people, it is hard to consider how to live without a bank account. Since the birth of civilization, banking has provided a means to exchange and save money. For most daily transactions today, from paying a bill to buying groceries, a bank account seems essential.
Let’s explore how to live without a bank account and if it’s possible.
Let’s Take a Look at The Facts
Some 10 million American households are what is known as unbanked, without any checking or savings account. For another 25 million Americans, they turn to risky alternative financial services even though they have bank accounts. Thus, they are considered underbanked and may look to a payday loan or check cashing service instead of a bank. Why? People living paycheck to paycheck are more likely to get hit with overdraft fees.
Even though interest rates and fees can be sky-high for alternative services, distrust of banks, predatory lending, high minimum balances, and the many overdraft and other fees incurred through bank accounts drive away millions of people.
People who have lower or sporadic incomes, higher debt loads, or poor credit scores are more likely to be underbanked. Let’s face it: It’s expensive to be poor when so many fees keep adding up. For others, they may have moved or experienced the growing problem of identity theft, closing bank accounts until the issues can be resolved.
Whatever the cause, there is a real economic burden on unbanked people, who face setbacks to building savings, much less improving their credit. Nevertheless, millions of people have figured out how to live without a bank account, even without resorting to high-interest alternatives.
Must We Live With Bank Account Fees?
If you’re wondering why millions are trying to avoid the bank, just consider some of these fees imposed by banks:
- Purchase fees
- Monthly fees
- Overdraft fees
- ATM cash-withdrawal fees
- ATM transaction-declined fees
- Balance inquiry fees
- Fees for using a debit card
- Fees for paper statements
- Fees for withdrawing cash
- Fees for transferring funds
- Dormancy fees
- Fees basically for being alive?
In addition, most banks require their customers to pay a minimum deposit to open and maintain an account. In the case of monthly overdraft fees, the bank could make three monthly overdraft charges per month for as much as $34.
Meanwhile, the fees for simply cashing checks add up significantly over a lifetime. The total for a lifetime of cashing checks for an average individual with a full-time job can be as much as $40,000. It’s little wonder that so many people are desperate to avoid the bank. Only one in ten customers of national banks would recommend them to a peer.
Little-Known Facts About Banks
Here are some surprising facts banks that many people may not realize.
- Banks are the legal owners of your money after you deposit it.
- Banks can spend your money as they like by deciding who can receive loans.
- As they make loans, banks create 97 percent of the money supply.
- Perhaps less surprising: Bank money is insured by the FDIC, which is one reason it’s a great way to save money safely.
As you can see, banks seem to rule the world, but that doesn’t mean you can’t learn how to live without a bank account. Let’s look at how people are making ends meet without checking or savings accounts.
How Can I Make Payments or Get Cash Without a Bank Account?
As technology improves, the list of ways to pay without a bank account is growing all the time. Here are some ways people are doing it today, but it’s not all-inclusive.
Pay in Cash
For millions of people, the obvious choice is to pay in cash, thus avoiding banking fees. You may cash your checks at a grocery store or retailer or at the bank that issued the check. In both cases, you can expect a small fee.
When you pay in cash, you avoid interest incurred by using a credit card. Besides, you will avoid the temptation of spending more than you intend to. As such, cash can be a great way to avoid impulse spending.
The many drawbacks of cash are obvious. Carrying around cash is extremely risky since it can be lost or stolen. As always, it’s tricky to come up with exact change, and you tend to accumulate all those coins. What’s more, for large-ticket items, paying cash may not be an option.
In the case of paying utility bills, cash is highly inconvenient since you often must pay in person. For whatever money is left, you’ll need a safe stash, such as a fireproof safe. Risk-takers may come up with creative ways to store cash, but it’s always a vulnerability.
Prepaid Debit Cards
A number one choice for the unbanked, prepaid debit cards allow you to have many of the features of a bank account. The Federal Reserve notes that prepaid debit cards are the fastest-growing non-cash method of payment.
However, almost anyone can qualify without any credit checks. Just as great, you can pay wherever credit cards are accepted. As you make purchases, you won’t rack up exorbitant interest fees.
These “pay-as-you-go” cards don’t require a bank account, so there isn’t any risk of overdraft fees. Indeed, there’s no way to overspend more than the dollar value of the card. If the card expires or is lost or stolen, you can get another card reissued.
You can load money onto the card in advance at places like ATMs or retailers. In many cases, people deposit their paychecks directly to the cards. There are also options for online transfers and depositing checks from your smartphone. Amazingly, some prepaid cards let you write checks and pay bills online.
Despite all of these great features, there are some drawbacks. For instance, the account linked to your prepaid card might not be FDIC-insured like a bank. Sadly, these cards are not subject to the Dodd-Frank Reform Act, which imposed regulations on financial systems and institutions in response to the financial crisis in 2008.
Also, you won’t avoid all fees. Generally, you’ll pay for a one-time setup fee, ATM fees, and a monthly maintenance fee. Each card varies, so it’s essential to inspect all the terms and conditions. See more about the fees in the video below.
You might see it as a positive that prepaid cards won’t affect your credit score, but on the other hand, you won’t be able to improve your credit score either. Regardless, prepaid cards are an excellent way to handle transactions without a bank account.
See more about prepaid debit cards from Consumer Reports:
Pay with Money Orders
Investopedia calls a money order a “paper check that can’t bounce.” Like the prepaid debit card, you provide the funds upfront. Thus, there is no risk of incurring those nasty overdraft fees as long as you don’t pay through a bank. The cost to buy one is cheaper than a cashier’s or certified bank check.
Over 200,000 locations use and create money orders in the United States. Although many people call them postal money orders, you don’t have to buy them at the post office. Buy them at Western Unions, as well as numerous convenient outlets inside major retailers and convenience stores. Even without a bank account, you can buy money orders in banks or credit unions.
Money orders work like a prepaid check that comes without risk to the recipient. Similarly, it’s much safer than sending cash, and you don’t have to have a bank account number or even show your address.
However, there are still small fees, including one to purchase the order. The cost varies, with Walmart offering a competitive $0.88 maximum fee.
Also, the person you write the check to might incur a charge to redeem the money order. They will also need to print a photo I.D. to cash the money order.
Unfortunately, people occasionally scam the system by creating a fake money order or pretending to overpay and then asking you for a refund. Check the security features and contact the issuer if there are any doubts.
Another drawback is you may not be able to deposit the money order online.
PayPal Without a Bank Account
PayPal provides easy digital payment methods in a secure gateway that uses the highest level of commercially available technology.
In most cases, PayPal accounts link to a users’ credit card or bank account. However, you can also use the service only with a PayPal Personal mobile wallet in the United States. It may be possible to use some prepaid debit cards from Visa, MasterCard, Discover, or American Express to transfer funds.
The company also provides debit cards for payments as well as lines of credit.
A relatively new introduction, the PayPal Cash card can be used anywhere a Mastercard is accepted. You can use the app to load cash at over 100,000 retailers, which means you don’t have to have a bank account. The retailer may charge a fee for the service, and there is a daily cash load limit of $1,500.
With a PayPal Cash Plus account, you can also deposit checks and use a debit card.
Downsides of PayPal are that it has the right to freeze your funds and lock your account for 90 days. Of course, there are also fees for using the service, which you may be able to avoid.
A similar app, Venmo, works similarly to PayPal. The app features perks like cash-back rewards, and you can split bills with other Venmo users. There’s a 3 percent fee to use a debit card not linked to a bank.
Paying Friends and Family
For situations where you want to pay a family member or friend, there are numerous options. In fact, there seems to be more all the time. So-called peer-to-peer apps are exploding in popularity while old standbys like Western Union are making big improvements.
Experts recommend never sending money to strangers to avoid potential scams or hacks.
A few ways to pay:
- Walmart2Walmart app
- Western Union
- MoneyGram
- Facebook Messenger
- Google Pay
- PayPal
- Apple Pay
- Venmo
More from Consumer Reports:
Wiring Money
Even without a bank account, you can send or receive money through Western Union. There are over 500,000 locations around the world. You will be charged a fee to wire the cash, which is roughly $5 for sending $50 or less.
Western Union’s biggest rival is MoneyGram, which works similarly. MoneyGram is known for its international money transfers. As with Western Union, the fees vary widely depending on where you want to send money.
Both services are expanding their services all the time, including ways to pay bills, or use apps to pay in cash. They even offer prepaid debit cards.
Walmart-to-Walmart
Mega-retailer Walmart allows you to transfer money between store locations or through the Walmart2Walmart app. Then the person you send the money to can pick it up at any Walmart location in the United States. There is a fee to transfer the funds, ranging from $4.50 to $18. However, the recipient can pick it up as fast as ten minutes later.
See more about Walmart’s banking services from Consumer Reports:
Check Cashing Services and Payday Loans
For many people who avoid banks, they end up breaking down and going to alternatives like check-cashing services or payday loan stores. Unfortunately, these services can charge stratospheric fees that leave people trapped in a cycle of poverty. Annual percentage rates for payday loans can skyrocket to between 300 and a whopping 600 percent.
The Federal Trade Commission (FTC) warns against using the payday loans and check cashing services. As with prepaid debit cards, payday loans are not subject to the Dodd-Frank Reform Act.
With the high percentage rates and the probability that you will experience rollover finance charges, a loan for $100 could easily end up costing you $60. Alternatively, they point to going back to banks, credit unions, and credit cards with low APRs.
Nevertheless, some 12 million Americans use payday loans to get by. When you are living paycheck to paycheck, like up to 78 percent of Americans, you have to do what you must to survive.
For many, these alternative services provide more personalized services than traditional banking. If you get behind on payments, banks are often less forgiving and capable of imposing lasting financial burdens on consumers.
Consequently, many people don’t trust banks and want more upfront transparency about fees. Indeed, they will choose to pay much more in the long run rather than go to a bank. Unfortunately, they may not have the financial literacy needed to examine the long-range benefits and drawbacks involved.
Timebanking and Bartering
For those truly committed to living without bank accounts, they can fall back on living the old-fashioned way. Foraging and bartering were the way of life for our ancestors before the advent of the first currencies, banks, and capitalism. Today, people are still getting by in times of need, relying on their property, knowledge, and creativity – not banks. Even those in the family without jobs can contribute through bartering.
Online barter communities have made it faster and more convenient to arrange an exchange of goods or services. Members of online cooperatives can be local or from different parts of the world. You can find help with everyday tasks. Participants can be average skilled individuals or businesses looking for support from other companies.
There is no end to the types of goods or services that you can swap, from clothes to toys to babysitting. Even the ubiquitous Craigslist can be a great source for finding people wanting to trade items or work. Keep in mind that bartering can still be subject to income taxes.
Similar to bartering, timebanking allows individuals, organizations, or businesses to exchange an agreed-upon amount of time performing a service. You agree to do a task like mowing a lawn for an hour and receive an hour’s credit. Then, you can redeem the hour of service and have someone complete a chore or task for you.
What If Banks Made Services Affordable?
In actuality, banks tend to have little incentive to provide solutions to lower-income families. Instead, banks are accused of growing rich at the expense of the poor.
Why aren’t banks interested in creating more consumer-friendly banking alternatives? Since 25 to 40 percent of checking accounts aren’t profitable for banks, they impose fees to make up the difference.
Financial experts from Wharton note that if banks could avoid imposing such fees, that would translate to an extra $108 a month to 9 million unbanked households each month. That money could pay for living expenses. More than that, the overall savings if unbanked people all had access to affordable banking services could cover the entire food stamp program. Now that’s food (or cash?) for thought!
If governments created more incentives for banks to help lower-income people with affordable services, it could have huge benefits for all of society.
Is it Possible to Save Without a Bank Account?
For millions living on the edge of possible financial hardship, it seems like a luxury to consider saving money without using banking services. There are a few possibilities, including buying precious metals like gold or silver. For 6,000 years, the value has remained stable, so it’s a reliable choice. On the other hand, without a bank, it’s also vulnerable to burglars.
Besides precious metals, there are endless varieties of valuable collectibles to consider. This type of small investment is where your passions could either be a help or hindrance.
For example, your obsession with collecting Beanie Babies might have seemed great in the 80s. Today, you might regret storing all those bears and other critters in your home. On the other hand, hard assets like stamps, classic cars, and antique guns could pay off one day. As always, there is plenty of uncertainty and risk involved.
Another possible way to save money without a bank account is through crowdfunded real estate investment. Of course, making such significant investments in cash seems out of reach for most people. However, you can invest smaller amounts in real estate without holding a property.
There are many books written on investing in real-estate without turning to banks. Exchange-traded funds (ETF), mutual funds, Real estate investment trust (REITs) are ways to invest money in real-estate.
Additionally, it might be worth considering buying properties like farmland, which could be purchased relatively inexpensively. Then, you could rent the land for agricultural use.
Can You Get a Loan Without a Bank Account?
Unfortunately, applying for a loan is much harder without a bank. You can try credit unions, but the most likely alternative is payday loans and car title lenders. As noted previously, both have high-interest rates and long-term fees. Shockingly, payday loans can charge APRs as high as 500 percent.
Other options are pawnshop loans, rent-to-own agreements, and auto title loans. Once more, these types of loans can charge exorbitant fees and interest rates. In the case of auto title loans, the annual percentage rate (APR) can exceed 300 percent.
Another option could be peer to peer lending (P2P), also called marketplace lending or crowdfunding. These loans avoid banks and credit unions. Instead, the money comes from individuals and investors. As such, the interest rates tend to be much better than with payday loans. However, you need a decent credit score to apply in most cases. Similarly, if you default on the loan, then it will affect your credit score.
Is a Bankless World Coming in the Future?
Quite recently, talk about alternative digital currencies led to speculation that there would be a disruption of the banking industry. Instead of relying on the banks, all individuals with computer access could become the bankers of the world.
Although digital cryptocurrencies like Bitcoin seemed ready to take off the ground, they have instead got off to a highly shaky start. However, experts say it’s still possible that disruption could lay ahead in the next decade. Alternative currencies like Bitcoin are fast, cheap, anonymous, and untraceable, which presents enormous problems.
The problem for banks is that transferring cryptocurrencies is lightning fast, taking seconds online. On the other hand, transferring or wiring money through a bank is relatively slow and incurs more fees, as we’ve discussed. So why should individuals rely on a middle man if they can transfer funds on their own, both faster and cheaper?
As you read this, Facebook, a social media platform with 2.4 billion users, is developing a digital currency called Libra. If that were ever to hit the market, it would force banks to adapt quickly. In the United States, the Federal Reserve is acutely aware and exploring the idea of introducing a payment system that can compete with digital currencies.
Whether banks like it or not, new technologies continue to pose a threat to the profits made through fees and low-interest rates. In response, the banking industries around the world are lobbying to block cryptocurrencies, but it may be a losing fight. In the end, the consumers who drive the markets will play a key role in driving the shift to new currencies.
Which Places Live Without Banking the Most?
For people who have always had a bank account, it’s hard to imagine where people are resorting to finding their way without banking. The Wharton School reveals that the top 100 so-called unbanked places are small rural towns. Surprisingly, the highest number of towns in one state is 36 towns in Texas, while there are 17 in Mississippi, and 10 in Arizona.
Meanwhile, the cities are not immune, with Miami ranking first with a whopping 21.4 percent underbanked and 20.1 percent unbanked. Other cities at the top were Detroit, Houston, Dallas, Cleveland, and Baltimore.
Although New York City was not at the top of the list, there are an astonishing 360,000 households considered unbanked and 780,000 unbanked in the city. The number is likely much higher in 2020. In certain areas like the Bronx, the percentage of unbanked residents is much higher, at 21.8 percent.
The translation is that roughly one in every nine households in New York City doesn’t have a bank account. It’s mind-boggling to think about how many Americans are struggling to get by today.
Should You Try to Live Without a Bank Account?
Considering all that we have reviewed, you may wonder if it seems advisable to avoid banking. However, going without access to banking services is not the first choice for people who become unbanked or underbanked. It’s generally the last resort as people struggle to make ends meet. Of course, a few people prefer to go “off the grid” as much as possible.
As we have seen, the future is wide open, with technology and digital currencies ready to disrupt the traditional banking industry shortly. In response, banks may respond favorably. Already some large private banks are beginning to offer more affordable bare-bone accounts with lower fees. As digital currencies expand, more solutions for lower-income individuals could be on the horizon.
