What is Second Chance Banking?

When you apply for a traditional account, a bank may check your banking history through a customer reporting agency, like ChexSystems.

Bounced checks, overdrafts, involuntary account closures, or unpaid negative balances can all show up on your ChexSystems report. A bank might deny your application for a traditional bank account if your report includes marks like these.

However, you could still get approved for a second chance bank account. This type of bank account offers access to basic banking services, including a debit card, ATM access, online bill pay, and direct deposit.

Second chance bank accounts typically have limited services. For example, they might not have overdraft protection, or they may charge a monthly maintenance fee. This protects the bank in case you repeat the banking mistakes from your past.

According to the FDIC, 4.2% of U.S. families are unbanked – which means they don’t have a checking or savings account. The unbanked rate is often higher among those led by single mothers, Black, Hispanic, American Indian, and Alaska Native communities, and lower-income earners. It also affects those with less education and people with a working-age member who has a disability.¹

Whether it’s because of negative marks on their ChexSystems reports, an inability to afford minimum balance requirements, or a distrust of banks, these households don’t have access to banking services that could improve their financial well-being.

Quality second chance banking services can be a game-changer. Here are some of the ways a second chance bank account can help.

Grow your savings

Without access to a bank account, it can be hard to build an emergency savings fund. You’ll also miss out on earning interest on your cash, which you could with a high-yield savings account.

Some savings accounts also come with automatic savings features to grow your savings faster. A second chance account may offer some of these features and can empower you to grow your savings.

Pay with a debit card

Many merchants no longer accept cash. Without a checking account and debit card, you might have to get a prepaid card, which can come with fees that make everyday purchases more expensive.

With a second chance bank account, you’ll get a debit card that links directly to your bank account and lets you make payments and withdraw cash at ATMs.

Get paid

In some states, employers are allowed to require payment by direct deposit, meaning your job prospects could be more limited without a checking account.² Employers may offer other payment methods, but these methods might be less convenient. For example, you may have to wait for a check in the mail and then drive to the issuing bank or a nearby check-cashing store to get your money.

Second chance accounts let you set up direct deposit, so your paychecks can get automatically deposited into your account.

Improve your credit score

Traditional lenders may be reluctant to offer you a loan if you have poor credit (or no credit at all). If you can’t get approved for a loan or credit card, it can be challenging to improve your credit score.

Many financial institutions that offer second chance banking also provide access to tools, like a secured credit card, which can help you start repairing your credit by reporting positive payment history.

Protect your money

If you keep cash under your mattress or in your purse, all it takes is a fire or a lost wallet, and your money is gone.

Second chance bank accounts can help protect your money. As long as you choose a bank account that’s insured by the FDIC (or a credit union account that’s insured by the NCUA), your account is insured for up to $250,000.^3,4

Here are some of the top features to prioritize when searching for a second chance bank account:

• Low or no fees: Some financial institutions charge monthly service fees. This can make banking expensive – especially for low-income families. Instead, find an account with low fees or no monthly maintenance fees at all.
• No minimum balance requirements: According to the FDIC, one of the core reasons that 4.2% of households are unbanked is an inability to afford the minimum balance requirements.¹ Look for a second chance bank account with low or no minimum balance requirements.
• Automatic savings features: Some financial institutions offer helpful features that make it easier to grow your savings. You might be able to send a portion of your paycheck straight to your savings account, or round up debit card purchases and put the extra change in savings.
• No overdraft fees: Overdraft fees can add up quickly, and households already struggling with finances are more likely to overdraft. Find second chance banking accounts with no overdraft fees to avoid this charge.
• ATM access: If you’re not used to keeping your money in a checking account, you’ll want to make sure you have easy access to cash when you need it. Find an account with a wide network of fee-free ATMs to easily withdraw your money.
• An easy-to-use app: Mobile banking apps may enable you to track low balances, manage your spending more easily, and get reminders for bill due dates.

Ready to open a second chance bank account? Here’s how to do it:

1. Find the right account: Research a few second chance banking options and compare the fees, deposit requirements, interest rates, and features.
2. Apply: Once you find the right fit, apply with the bank or credit union, either online or in person. You’ll need some basic info, like your birthday, home address, Social Security number, and maybe a photo ID.
3. Move money into the account: Once you’ve opened the account, find out your options for funding it with the cash you have on hand. Each financial institution will have its own methods, so follow their guidance online or call customer service if you need help.

Traditional banks and credit unions may deny your application for an account because of old issues reflected on your ChexSystems report, but that doesn’t mean you’re out of options. By opening a second chance bank account, you can start turning your finances around and get back on track with your financial goals.

Looking for more ways to boost your financial profile? Learn more about how to open a bank account with bad credit.