Here's What Happens When You Don't Have a Bank Account

Around 5.9 million American households don't have a bank account, and an additional 18.7 million households have limited access to financial services. According to FDIC data, that means there are almost 25 million households who are reliant on prepaid debit cards, money orders, and online payment providers to carry out essential financial transactions.

Some people choose not to have a bank account because they don't trust banks. Others may have had trouble in the past or worry about meeting minimum balance requirements. If you don't have a bank account, those are all understandable concerns. The difficulty is that the costs of living without a bank can really add up.

The costs of not having a bank account

Unfortunately, there are both direct and indirect costs to being outside the traditional banking system. It can be time consuming, for starters. For example, you may have to go in person and wait in line so you can pay certain utility bills. It can also be harder to access credit if you need to borrow money, and put a drag on everyday money management. Plus, it's often more expensive. Here's how some of the costs break down.

Prepaid debit cards and online payment services

A third of unbanked homes use prepaid cards to pay bills, receive money, and make purchases and other transactions, per the FDIC. Costs and benefits vary depending on the card, so it's worth shopping around for one that suits your needs.

For example, Bluebird by American Express (Member FDIC) has no monthly fees, a decent network of ATMs with free withdrawals, and ways you can add cash to your account at no charge. Other cards have monthly fees (often waivable) and charge for various transactions. The Walmart MoneyCard charges a $5.94 monthly fee unless you deposit at least $500 a month. It also rewards you for shopping at Walmart.

Many transactions with online payments apps such as PayPal, Venmo, and Cash App are free, particularly if you aren't using a debit or credit card. However, you may have to pay if you need an instant transfer, and you'll need a non-bank way to top up your payment app.

How to save money: Research prepaid cards that are free or have waivable fee requirements you can meet.

Money orders and cashing checks

If you don't have a checking account, you might use a money order to send money. If you do it via the U.S. Postal Service, it can cost $2 or $2.90, depending on the amount you need to send. Costs also vary for cashing a check. Walmart charges a maximum of $4 for checks up to $1,000.

How to save money: Use payment apps to send money for free rather than money orders. You may be able to deposit checks for free if you use the check writer's bank. Several prepaid cards allow mobile check deposits, which may help if you regularly need this service.

What to do if you don't have a bank account and want one

The fees above give you some idea of the costs of being unbanked. Let's say you're paying a monthly fee of $5 for a prepaid card and another $8 a month for money orders and cashing checks. That's more than $150 a year.

You might feel that you don't have another option -- or that banking fees would cost you even more. But if you want a bank account, there are moves you can make.

1. Look into second-chance bank accounts

If you have had difficulties before, such as overdrawing an account or unpaid fees, you might have trouble opening a bank account. Banks use something called ChexSystems to track this type of activity and may decline applications as a result.

This is where second-chance banking comes into play. These accounts are designed for people who may not get a high enough ChexSystems score. Shop around for one with a low (or no) monthly fee and requirements you can meet. Over time, you can rebuild your ChexSystem score and qualify for an account with more perks.

2. Look for a no-fee bank account

If you're concerned about bank account fees, there are several free checking accounts that might suit your needs. Be aware that even if the account doesn't charge monthly maintenance fees, you may get hit for expenses like ATM fees or overdraft fees. For example, a lot of banks will charge you for using an ATM that's not in their network.

Overdraft fees can be nasty, but you can avoid them. If your bank account is regularly low on funds:

• Look for a bank that won't charge non-sufficient funds (NSF) fees. NSF fees are charged if a transaction gets declined because there isn't enough money in the account. Many banks have scrapped this fee.
• Say no to overdraft protection. Overdraft protection means the bank will process a transaction, even if you don't have the funds, and charge you a fee. Don't opt in to this service. That way you won't get charged for each overdrawn transaction.

3. Look for an account that doesn't require a minimum balance

Minimum balance requirements can be another big concern. Nobody wants to get charged just because their balance slips below a certain amount. But there are a number of top checking accounts that don't have account minimums offered by online banks, such as Discover, Ally, and Chime.

Bottom line

If you don't have a bank account, you could be paying unnecessary fees to pay your bills or otherwise manage your finances. Not only that, you may be missing out on some of the convenience and consumer protections that banks offer. The good news is that there are a number of ways to avoid banking fees, particularly unexpected ones. There are also second-chance options if you've had difficulties with banks in the past.

You can do a lot with prepaid debit cards and online payments apps, but a bank account may actually work out to be cheaper and more secure.