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Life without banks: Difficult and expensive

Reporter's experiment found high charges to cash checks, prepaid cards with hefty fees and lots of standing in line.

By Teresa Mears Oct 13, 2010 1:23PM

About one in four U.S. households doesn't have a bank account. Associated Press reporter Candice Choi did a one-month experiment to find out what it would be like to be one of them.

Her conclusion: Living without a bank account is expensive and time-consuming.


In one month, she paid $93.50 in fees for such services as check cashing, money orders or prepaid cash cards. That would amount to an annual cost of $1,122 a year just to use her own money.


Being "unbanked" was difficult. "So many of my finances are automated -- direct deposit, automatic bill pay -- that it was jarring to spend so much time waiting in Soviet-style lines to cash checks and pay rent," she wrote.


So why would anyone choose not to open a bank account, a situation that's particularly common among households that earn less than $30,000 a year? Choi explains:

Some do it because they believe they don't have enough money to open a bank account or were burned by fees in the past. But it's not always a matter of choice: Many can't open an account because of a history of bad checks or damaged credit.

These are some of the fees Choi paid:

  • $56 to cash two paychecks at check-cashing stores.
  • $3.50 for two money orders for her $1,300 rent.
  • $34 for fees on prepaid cards, including $4.95 each for two cards, $1 fee for each purchase ($1.50 if she used a PIN), $1.95 for cash back at a store, $4.95 to reload a card, and $5 to withdraw funds from a bank.

She found the prepaid cards particularly difficult because each one comes at a different cost, with different fees and different terms. And she had to spend quite a bit of time correcting errors on one card. That could be costly on the cards that charge $1 per minute to call customer service.


Still, use of these cards is becoming more common, she wrote:

Americans are expected to load $37 billion this year on to prepaid cards, which function like bankless debit cards and are available at drug stores and discounters. That's twice as much as last year and four times the amount in 2008.

Brad Tuttle at Time's It's Your Money questioned why anyone would use those prepaid cards instead of cash:

So basically, you pay cash so that you can have a card that's as convenient as cash. To me, these prepaid cards rank right up there with gift cards: They're as good as cash, only they cost more and generally wind up getting you less. Which means they're really not as good as cash.

For people who can't find or don't want to open an account at a bank, a credit union might be a good choice. Fees are usually lower and customer service is often better.

One place to check for financial services is Wal-Mart, which offers check cashing, money orders and wire transfers at lower fees than many other providers at its Money Centers.


The National League of Cities and other groups are teaming with nonprofits to match "unbanked" residents with affordable bank accounts through initiatives called Bank On. A national Bank On initiative has been proposed as part of the 2011 federal budget, in an effort to match residents with banking services that are convenient and don't charge enormous fees.


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