- Unbanked communities face significant barriers to receiving banking products and services.
- Experts weigh in on how to identify a financial institution with more inclusive policies and practices.
- Consider Bank On-certified or FDIC-designated minority depository institutions for options.
- Read more stories from Personal Finance Insider.
Opening a bank account can play an important role in personal finances. Not only does it provide a safe place to store and manage money, but it also gives you the option of establishing a banking relationship with a financial institution, which could affect your ability to make future financial decisions like receiving loans. or get credit cards.
What does it mean to be unbanked?
The term unbanked refers to those who do not use or have access to a bank account to manage their money.
Unfortunately, not everyone in the United States is banked. According to an FDIC survey, 5.4% of US households remained unbanked in 2019 – more than 16 million people – and the unbanked rate for black households and Hispanic households was significantly higher than the unbanked rate. for white households.
The FDIC survey also indicates that one of the most cited reasons for not having an account is that unbanked households “don’t trust banks.” We asked experts to provide insight into what inclusive practices and policies look like. Below are guidelines you can use to assess a bank’s reliability and find an institution that meets your needs.
Financial education to empower the unbanked
Nicole Elam, president and CEO of the National Bankers Association, acknowledges that black and brown households face greater challenges than white households when receiving loans and other financial services.
“When you think about the history of black and brown communities, many of them have been systematically excluded,” Elam says. “It’s understandable that there is a distrust of things.”
Therefore, these communities should look for institutions that not only promote products and services, but also offer financial education.
“When you talk about unbanked and underbanked households, they need inclusive financial education, so education that meets them where they are, as well as access to financial services to achieve health financial,” says Elam.
Elam adds that when you combine financial literacy with an established banking relationship, you are able to change the banking behaviors of the unbanked.
Cultural nuances that speak to communities of color
Another important quality to look for in financial institutions is how they treat and recognize you.
Pablo DeFilippi, executive vice president of community development financial institution Inclusiv Network, recommends paying attention to the atmosphere of a financial institution the same way you would if you go to a restaurant.
“What do you do when you go to a restaurant? Are there many people? This tells you that the food is good even before you order the food. There are clues that tell you that a place is a good place. These are the things that we need to elevate in consumers. What are you looking for from the outside without knowing anything about the institution,” DeFilippi told Insider. “I wouldn’t go to a restaurant where they don’t treat me well. In financial institutions, it’s the same.”
DeFilippi recommends being observant and checking to see if specific services are offered. For example, if your family speaks mostly Spanish, you’ll want to look for bilingual documents and Spanish-speaking bankers. If you don’t have a US ID, you’ll want to see how an institution treats you and if they allow you to use foreign ID.
Minimize banking barriers to receiving services
According to the FDIC survey, the top reason unbanked households report not having a bank account is that they are unable to meet minimum balance requirements.
Banks often charge monthly service fees on bank accounts if you don’t maintain your account balance. However, the non-profit organization Bank On is working to ensure that unbanked households have access to affordable bank accounts.
David Rothstein, senior director of the Cities for Financial Empowerment Fund and leader of the Bank On initiative, says unbanked households can turn to Bank On as a resource to determine their options.
“All of these accounts will meet Bank On standards. They will cost $5 or less per month, no overdraft or NSF fees, a minimum opening deposit of $25 or less,” Rothstein says. “The benefit we’re trying to provide is that we’re not trying to steer someone to a particular account.”
Additional resources to use in your search to find the right institutions
Bank On also has local coalitions that serve communities. Rothstein shares the work of local coalitions with different groups to help individuals find the best bank account for their needs.
“In Lansing, Michigan, they opened bank accounts before they went to jail. So when they got out, they had money on hand, so the bank didn’t have to send the money back to the state if they were gone for a while. We’re also working in Milwaukee around the foster care initiative,” Rothstein adds.
The FDIC also recognizes financial institutions owned by Blacks, Hispanic Americans, Asians, and Native Americans and serves their respective communities under the Minority Depository Institutions Program. You can check out our guide to black-owned banks or our guide to Hispanic-owned banks to learn more about the specific services and products offered.