Check Cashing: It’s Your Money, Keep It!
If you’re not using a checking account, you’re not getting your whole paycheck.
Checking accounts are an afterthought for most people. Their paychecks get deposited directly into them and they use their debit card to make purchases. Even though they use their checking account every single day, it becomes a completely invisible amenity, like underwear. And not fun underwear either. Just boring everyday tighty whities.
But checking accounts are something that people have to apply for, and like with any other application process, it is possible that they’ll get denied. The reasons why people get denied for checking accounts are similar to the reason why people get denied for loans: they have a record, and it’s got some dings.
What Will Get Me Denied?
The kinds of activity that will get people denied for a checking account are things like:
- An unpaid negative balance on a previous account.
- A history of writing bad checks or other fraud-related behavior.
- Sharing an account with someone who has had problems like these.
So What Now?
For people who can’t get a checking account, it might seem like the only option out there is to make a weekly trip to the check cashing store. These are the storefront businesses that charge a fee—usually a percentage of the check—to convert it into cash. Another option that people make use of is prepaid debit cards. They load up the cards with the money from their check and then use them like they would a regular debit card.
But relying on check cashing stores and prepaid debit cards for spending is not such a great idea. In fact, on the list of “stuff that’s good to avoid,” they’re just below political arguments on Facebook and replying to emails from Nigerian princes.
What’s the Problem?
The problem with check cashing stores is those aforementioned fees. They vary by state but are usually for a few percent or even higher. That doesn’t sound like a lot, but that’s a non-negligible portion of your income that’s basically evaporating. For instance, someone making $30,000 and getting charged 5% every time they cash a check is probably losing nearly $1,000 per year. And as anyone who is making $30,000 a year can tell you, an extra $1,000 per year would be pretty handy.
Most prepaid cards can charge even more. There are a lot of things that come free with a checking account and debit card that a customer might get charged for with a prepaid card. This includes pretty basic stuff like depositing funds, in-network ATM use, monthly account maintenance and even just using the card to buy stuff. Another problem with prepaid cards is that many don’t report to the major credit bureaus. Even if you are using the card responsibly, you are literally not getting any credit for it.
What’s a Better Option?
There are definitely some good alternatives to using a check-cashing store or prepaid debit card.
Firstly, make sure that your checking account denial was legitimate. Just like credit reports, a person’s bank report can have errors in it. The Consumer Financial Protection Bureau (CFPB) has a handy guide for what to do when you are denied a checking account.
Another good idea is to look into paying off the overdue balance that might have been the reason for your denial. There are many banks who will approve a checking account application once the negative balance has been paid off. It’s sort of like returning all your overdue books to the college library so that the school will give you your degree.
There is also a kind of checking account that’s referred to as a “second chance” or “low-risk” account. They are offered by many large financial institutions and provide greater security and stability for your finances. They do have higher fees than a regular checking account and usually lack overdraft capability (which isn’t a bad thing, honestly), but they also give users a clear path to building a better credit history and eventually graduating to a regular checking account. For more information on low-risk accounts, here is yet another handy guide from the CFPB.
 “Consumer Guide to Checking Accounts Denials.” Consumer Financial Protection Bureau. Accessed February 19, 2016. https://files.consumerfinance.gov/f/201602_cfpb_consumer-guide-to-being-denied-a-checking-account.pdf
 Zhen, Simon. “How to Cash a Check Without a Bank Account.” U.S. News and World Report. Accessed February 19, 2016. https://money.usnews.com/money/blogs/my-money/2015/02/20/how-to-cash-a-check-without-a-bank-account
 Tierney, Spencer. “Second Chance Checking: Real Information and Resources.” NerdWallet. Accessed February 19, 2016. https://www.nerdwallet.com/blog/checking/second-chance-checking/
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