Financial Inclusion: Access to Bank Accounts
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August 27, 2020
Financial Inclusion: Access to Bank Accounts
Most U.S. consumers choose to open a bank account, such
not in a position to obtain loans from the banks in the near
as a checking or savings account, because it is considered a
future. Therefore, bank fees may be s een as the best way for
safe and secure way to store money, particularly as the
banks to recoup their account costs for these consumers.
Federal Deposit Insurance Corporation (FDIC) insures up
to $250,000 per depositor against an institution’s failure. In
Because of the way bank fees are structured, consumers
addition, consumers gain access to payment services
with lower balances tend to incur more fees than higher
through checking accounts, such as the ability to make
balance consumers. In the past decade or so, the availability
electronic payments online, direct deposit, and paper
of free or low-cost checking accounts has reportedly
checks. Frequently, a checking account includes access to a
diminished, and fees associated with checking accounts
debit card, which increases a consumer’s ability to make
have grown. Some bank accounts require minimum account
payment transactions through the account. For most
balances to avoid certain maintenance or service fees. The
consumers, a bank account is less expensive than
most common fees that checking account consumers incur
alternative ways to access these types of services.
are overdraft and nonsufficient fund fees. Overdraft
services can help consumers pay bills on time, but the
Opening a bank account is relatively easy for most people.
associated fees can be costly, particularly if used
Consumers undergo an account verification process, and
repeatedly. For consumers living paycheck to paycheck,
they sometimes provide a small initial opening deposit of
maintaining bank account minimums and avoiding account
money into the account. Many consumers open their first
overdrafts might be difficult. Unpaid fees can lead to
bank accounts when they get their first jobs or start post-
involuntary account closures, making it more difficult to
secondary education. Checking and savings accounts are
obtain a bank account in the future.
often the first relationships that a consumer has with a
financial institution, which can later progress into other
The Unbanked and Underbanked
types of financial products and services, such as loan
According to the FDIC’s 2017 National Survey of
products or financial investments. However, many U.S.
Unbanked and Underbanked Households, 6.5% of
households—often those with low incomes, lack of credit
households in the United States were unbanked, meaning
histories, or credit histories marked with missed debt
that these households did not have a bank account (Figure
payments—do not use banking services.
1). In addition, another 18.7% of households were
underbanked, meaning that although these households had a
Bank Accounts Economics
bank account, they obtained certain nonbank financial
Depository institutions, such as banks or credit unions,
services at least once in the past year. These nonbank
incur expenses to provide bank accounts to consumers,
financial products, called alternative financial services,
which include providing monthly statements, settlement
include check cashing, money orders, payday loans, auto
risks, and fraud. In addition, physical banking branches
title loans, pawn shop loans, refund anticipation loans, and
incur costs to hire staff and maintain retail locations. To
rent-to-own services.
recoup these costs and make profits, depository institutions
make money from interest rate spreads (i.e., loaning out
Figure 1.Percentage of American Households
funds they take in from checking and savings accounts at a
Unbanked or Underbanked
higher interest rate than they pay the account holders) and
account fees. Historically, some banks have been willing to
lose money on bank accounts to begin a relationship with a
client and later get more profitable business, such as a
credit card or mortgage loan. Checking and savings account
data might allow a bank to better underwrite and price loans
to a consumer. In this way, banks with a checking account
relationship with a consumer might be able to provide more
attractive loan terms than other banks without this
relationship.
Source: Gerald Apaam et al., FDIC National Survey of Unbanked and
Lower balance or less creditworthy consumers may
Underbanked Households, October 2018, p. 2, at https://www.fdic.gov/
generally be less profitable for banks to serve. Consumers
householdsurvey/2017/2017report.pdf.
with low checking or savings account balances provide
banks minimal funds to lend out and make a profit with.
Unbanked consumers are more likely to be lower-income,
Less creditworthy consumers may be less likely to develop
younger, a racial or ethnic minority, disabled, less formally
into profitable relationships for banks if such consumers are
educated, or have more variable monthly income compared
with the general U.S. population.
https://crsreports.congress.gov
Financial Inclusion: Access to Bank Accounts
Unbanked persons may elect not to open a bank account
may be in a position to help increase access to these types
due to costs, a lack of trust, or other barriers. According to
of financial products for the underserved.
the FDIC survey, these households reported that they did
not have a bank account because they did not have enough
The Community Reinvestment Act (CRA; P.L. 95-128, 12
money, did not trust banks, and sought to avoid high and
U.S.C. §§2901-2908) currently encourages banks to
unpredictable bank fees.
provide credit in the areas where they collect deposits, and
it encourages banks to provide outreach initiatives to low-
Banking Account Alternatives
and moderate-income customers that would promote access
Unbanked households rely on nonbank alternative financial
to bank accounts and relationships. Certain policymakers
products and services, particularly transaction-related
suggest that changes to CRA or other regulations could
offerings such as check cashing and money orders, to pay
encourage more banks to increase access to bank accounts.
bills and receive income. Alternative financial products can
In addition, financial education programs or outreach
sometimes be less expensive, faster, and more convenient
initiatives coordinated by the government or nonprofit
for some consumers. Although these nonbank transaction
organizations also could promote access to bank accounts.
products might charge high fees, some consumers may
incur higher or less predictable fees with a checking
New technologies may have the potential to reduce the cost
account. For example, a consumer may incur overdraft fees
of providing more affordable financial products to
unexpectedly with a bank account, where for that consumer,
unbanked and underbanked consumers. Yet, concerns exist
other nonbank product options may have a clear upfront
for internet-based products around data privacy and
fee. In addition, such alternative financial products might
cybersecurity issues. Policymakers debate whether existing
allow consumers to access cash more quickly, which might
regulation can accommodate financial innovation or
be valuable for consumers with tight budgets and little
whether a new regulatory framework is needed.
liquid savings or credit to manage financial shocks or other
expenses. Nonbank stores often are open longer hours than
Payment system improvements, either by the government or
banks, including evenings and weekends, which might be
the private sector, may also have the potential to improve
more convenient for working households who want in-
welfare for unbanked or underbanked consumers. Many of
person interactions. Nonbank stores might also be more
these consumers choose alternative financial payment
likely to cater to a local ethnic or racial community, for
products, such as check cashers, to access their funds
example, by hiring staff who speak a particular language
quickly. These consumers might not require such
and live in the local community. Although consumers may
alternative services if bank payment systems operated
find benefits in using nonbank alternative financial products
faster. Both the private sector and the government are
and services, these may not always have all of the benefits
currently working on faster payment initiatives.
of bank accounts, such as FDIC insurance or other
consumer protections.
Other policy proposals include the government directly
providing accounts to retail customers (e.g., offering
General purpose prepaid cards are another popular
banking services at post offices or providing banking
alternative to a traditional checking account. These cards
services online to the public through the Federal Reserve,
can be obtained through a bank, at a retail store, or online,
which already provides accounts to banks). Opposition to
and they can be used in payment networks, such as Visa
these proposals often centers on the appropriate role for the
and MasterCard. General purpose, reloadable prepaid cards
government. Some argue that the government is not to
generally have features similar to debit and checking
compete with the private sector to provide these services to
accounts, such as the ability to pay bills electronically, get
consumers, especially in the competitive banking market.
cash at an ATM, make purchases at stores or online, and
Moreover, government bank accounts may fail to attract
receive direct deposits. However, unlike checking accounts,
consumer demand.
prepaid card funds are not always federally insured against
an institution’s failure. Prepaid cards often have a monthly
Selected Legislation: 116th Congress
maintenance fee and other particular service fees, such as
Access to bank accounts continues to be a subject of
for using an ATM or reloading cash. Some banks offer
congressional interest and legislative proposals. In the 116th
prepaid cards, yet unbanked consumers are much more
Congress, the House passed H.R. 4067, directing the
likely to use a prepaid card from a store or website that is
Consumer Financial Protection Bureau to report regularly
not a bank.
to Congress on unbanked, underbanked, and underserved
consumers.
Possible Policy Responses
In regard to helping consumers manage their finances, some
CRS Resources
research suggests that consumers may particularly benefit
CRS Report R45979, Financial Inclusion and Credit
from (1) access to affordable electronic payment system
Access Policy Issues, by Cheryl R. Cooper.
services and (2) a safe way to accumulate and hold
emergency savings. In addition, developing a relationship
Cheryl R. Cooper, Analyst in Financial Economics
with a bank may make it easier for a consumer to gain
access to credit from the bank in the future. The
IF11631
government, the private sector, and the nonprofit sector all
https://crsreports.congress.gov
Financial Inclusion: Access to Bank Accounts
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permissio n of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11631 · VERSION 1 · NEW
August 27, 2020
Financial Inclusion: Access to Bank Accounts
Most U.S. consumers choose to open a bank account, such
not in a position to obtain loans from the banks in the near
as a checking or savings account, because it is considered a
future. Therefore, bank fees may be s een as the best way for
safe and secure way to store money, particularly as the
banks to recoup their account costs for these consumers.
Federal Deposit Insurance Corporation (FDIC) insures up
to $250,000 per depositor against an institution’s failure. In
Because of the way bank fees are structured, consumers
addition, consumers gain access to payment services
with lower balances tend to incur more fees than higher
through checking accounts, such as the ability to make
balance consumers. In the past decade or so, the availability
electronic payments online, direct deposit, and paper
of free or low-cost checking accounts has reportedly
checks. Frequently, a checking account includes access to a
diminished, and fees associated with checking accounts
debit card, which increases a consumer’s ability to make
have grown. Some bank accounts require minimum account
payment transactions through the account. For most
balances to avoid certain maintenance or service fees. The
consumers, a bank account is less expensive than
most common fees that checking account consumers incur
alternative ways to access these types of services.
are overdraft and nonsufficient fund fees. Overdraft
services can help consumers pay bills on time, but the
Opening a bank account is relatively easy for most people.
associated fees can be costly, particularly if used
Consumers undergo an account verification process, and
repeatedly. For consumers living paycheck to paycheck,
they sometimes provide a small initial opening deposit of
maintaining bank account minimums and avoiding account
money into the account. Many consumers open their first
overdrafts might be difficult. Unpaid fees can lead to
bank accounts when they get their first jobs or start post-
involuntary account closures, making it more difficult to
secondary education. Checking and savings accounts are
obtain a bank account in the future.
often the first relationships that a consumer has with a
financial institution, which can later progress into other
The Unbanked and Underbanked
types of financial products and services, such as loan
According to the FDIC’s 2017 National Survey of
products or financial investments. However, many U.S.
Unbanked and Underbanked Households, 6.5% of
households—often those with low incomes, lack of credit
households in the United States were unbanked, meaning
histories, or credit histories marked with missed debt
that these households did not have a bank account (Figure
payments—do not use banking services.
1). In addition, another 18.7% of households were
underbanked, meaning that although these households had a
Bank Accounts Economics
bank account, they obtained certain nonbank financial
Depository institutions, such as banks or credit unions,
services at least once in the past year. These nonbank
incur expenses to provide bank accounts to consumers,
financial products, called alternative financial services,
which include providing monthly statements, settlement
include check cashing, money orders, payday loans, auto
risks, and fraud. In addition, physical banking branches
title loans, pawn shop loans, refund anticipation loans, and
incur costs to hire staff and maintain retail locations. To
rent-to-own services.
recoup these costs and make profits, depository institutions
make money from interest rate spreads (i.e., loaning out
Figure 1.Percentage of American Households
funds they take in from checking and savings accounts at a
Unbanked or Underbanked
higher interest rate than they pay the account holders) and
account fees. Historically, some banks have been willing to
lose money on bank accounts to begin a relationship with a
client and later get more profitable business, such as a
credit card or mortgage loan. Checking and savings account
data might allow a bank to better underwrite and price loans
to a consumer. In this way, banks with a checking account
relationship with a consumer might be able to provide more
attractive loan terms than other banks without this
relationship.
Source: Gerald Apaam et al., FDIC National Survey of Unbanked and
Lower balance or less creditworthy consumers may
Underbanked Households, October 2018, p. 2, at https://www.fdic.gov/
generally be less profitable for banks to serve. Consumers
householdsurvey/2017/2017report.pdf.
with low checking or savings account balances provide
banks minimal funds to lend out and make a profit with.
Unbanked consumers are more likely to be lower-income,
Less creditworthy consumers may be less likely to develop
younger, a racial or ethnic minority, disabled, less formally
into profitable relationships for banks if such consumers are
educated, or have more variable monthly income compared
with the general U.S. population.
https://crsreports.congress.gov
Financial Inclusion: Access to Bank Accounts
Unbanked persons may elect not to open a bank account
may be in a position to help increase access to these types
due to costs, a lack of trust, or other barriers. According to
of financial products for the underserved.
the FDIC survey, these households reported that they did
not have a bank account because they did not have enough
The Community Reinvestment Act (CRA; P.L. 95-128, 12
money, did not trust banks, and sought to avoid high and
U.S.C. §§2901-2908) currently encourages banks to
unpredictable bank fees.
provide credit in the areas where they collect deposits, and
it encourages banks to provide outreach initiatives to low-
Banking Account Alternatives
and moderate-income customers that would promote access
Unbanked households rely on nonbank alternative financial
to bank accounts and relationships. Certain policymakers
products and services, particularly transaction-related
suggest that changes to CRA or other regulations could
offerings such as check cashing and money orders, to pay
encourage more banks to increase access to bank accounts.
bills and receive income. Alternative financial products can
In addition, financial education programs or outreach
sometimes be less expensive, faster, and more convenient
initiatives coordinated by the government or nonprofit
for some consumers. Although these nonbank transaction
organizations also could promote access to bank accounts.
products might charge high fees, some consumers may
incur higher or less predictable fees with a checking
New technologies may have the potential to reduce the cost
account. For example, a consumer may incur overdraft fees
of providing more affordable financial products to
unexpectedly with a bank account, where for that consumer,
unbanked and underbanked consumers. Yet, concerns exist
other nonbank product options may have a clear upfront
for internet-based products around data privacy and
fee. In addition, such alternative financial products might
cybersecurity issues. Policymakers debate whether existing
allow consumers to access cash more quickly, which might
regulation can accommodate financial innovation or
be valuable for consumers with tight budgets and little
whether a new regulatory framework is needed.
liquid savings or credit to manage financial shocks or other
expenses. Nonbank stores often are open longer hours than
Payment system improvements, either by the government or
banks, including evenings and weekends, which might be
the private sector, may also have the potential to improve
more convenient for working households who want in-
welfare for unbanked or underbanked consumers. Many of
person interactions. Nonbank stores might also be more
these consumers choose alternative financial payment
likely to cater to a local ethnic or racial community, for
products, such as check cashers, to access their funds
example, by hiring staff who speak a particular language
quickly. These consumers might not require such
and live in the local community. Although consumers may
alternative services if bank payment systems operated
find benefits in using nonbank alternative financial products
faster. Both the private sector and the government are
and services, these may not always have all of the benefits
currently working on faster payment initiatives.
of bank accounts, such as FDIC insurance or other
consumer protections.
Other policy proposals include the government directly
providing accounts to retail customers (e.g., offering
General purpose prepaid cards are another popular
banking services at post offices or providing banking
alternative to a traditional checking account. These cards
services online to the public through the Federal Reserve,
can be obtained through a bank, at a retail store, or online,
which already provides accounts to banks). Opposition to
and they can be used in payment networks, such as Visa
these proposals often centers on the appropriate role for the
and MasterCard. General purpose, reloadable prepaid cards
government. Some argue that the government is not to
generally have features similar to debit and checking
compete with the private sector to provide these services to
accounts, such as the ability to pay bills electronically, get
consumers, especially in the competitive banking market.
cash at an ATM, make purchases at stores or online, and
Moreover, government bank accounts may fail to attract
receive direct deposits. However, unlike checking accounts,
consumer demand.
prepaid card funds are not always federally insured against
an institution’s failure. Prepaid cards often have a monthly
Selected Legislation: 116th Congress
maintenance fee and other particular service fees, such as
Access to bank accounts continues to be a subject of
for using an ATM or reloading cash. Some banks offer
congressional interest and legislative proposals. In the 116th
prepaid cards, yet unbanked consumers are much more
Congress, the House passed H.R. 4067, directing the
likely to use a prepaid card from a store or website that is
Consumer Financial Protection Bureau to report regularly
not a bank.
to Congress on unbanked, underbanked, and underserved
consumers.
Possible Policy Responses
In regard to helping consumers manage their finances, some
CRS Resources
research suggests that consumers may particularly benefit
CRS Report R45979, Financial Inclusion and Credit
from (1) access to affordable electronic payment system
Access Policy Issues, by Cheryl R. Cooper.
services and (2) a safe way to accumulate and hold
emergency savings. In addition, developing a relationship
Cheryl R. Cooper, Analyst in Financial Economics
with a bank may make it easier for a consumer to gain
access to credit from the bank in the future. The
IF11631
government, the private sector, and the nonprofit sector all
https://crsreports.congress.gov
Financial Inclusion: Access to Bank Accounts
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permissio n of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11631 · VERSION 1 · NEW