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Banking the Unbanked: The Past and Future of the Free Checking Account

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Abstract

About one in twenty American households are unbanked (meaning they do not have a demand deposit or checking account) and many more are underbanked (meaning they do not have the range of bank-provided financial services they need). Unbanked and underbanked households are more likely to be lower-income households and households of color. Inadequate access to financial services pushes the unbanked to use high-cost alternatives for their transactional needs and can also hinder access to credit when households need it. That, in turn, can have adverse effects on the financial health, educational opportunities, and welfare of unbanked households, thereby aggravating economic inequality. Why is access to financial services so uneven? The roots to part of this problem are historical, and in this post we will look back four decades to changes in regulation, shifts in the ownership structure of retail financial services, and the decline of free/low-cost checking accounts in the United States to search out a few of the contributory factors.

Suggested Citation

  • Stein Berre & Kristian S. Blickle & Rajashri Chakrabarti, 2021. "Banking the Unbanked: The Past and Future of the Free Checking Account," Liberty Street Economics 20210630a, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:92833
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    Cited by:

    1. Paola Boel & Peter Zimmerman, 2022. "Unbanked in America: A Review of the Literature," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2022(07), pages 1-10, May.

    More about this item

    Keywords

    unbanked; banks; mutual banks; fintech;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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