Second chance banking gives people with blemished banking histories another opportunity to have traditional bank accounts. When people make mistakes–such as not repaying overdrawn balances–banks and credit unions make a report to ChexSystems, a consumer reporting agency.
A negative report at ChexSystems makes it difficult to open a checking account somewhere else. This post will provide you with an overview of second chance banking and help you decide whether it is right for you.
What is second chance banking?
Without a checking account, you may be using a prepaid debit card or a check-cashing service to make deposits and negotiate checks. While these are alternatives to traditional banking, they come with expensive transaction fees. In addition, they probably lack beneficial features like monthly statements and online banking.
Second chance checking accounts may be a better option. Usually, they have no or low minimum balance requirements, which makes them easier to manage. They offer the same services as traditional accounts, such as check writing, debit cards, online banking, and direct deposit.
On the other hand, they generally come with additional limitations and requirements that traditional accounts do not have, such as monthly fees that cannot be waived. In addition, your financial institution may require you to set up direct deposit or complete a money management class.
Another limitation is that your deposits may be subject to longer deposit holds. If you're not depositing guaranteed funds, such as a check issued by the federal government, your financial institution has the right to place a hold on the money you are depositing. This means the funds are not available to pay checks presented against your account or for you to withdrawal at an ATM or use to make debit card purchases.
At the time you deposit the funds, your bank or credit union must notify you its placing a hold on the funds you are depositing. Be sure you know if this is a limitation imposed on a second chance checking account you might open. If so, keep it in mind when managing your finances.
Although most second chance checking accounts come with restrictions and limitations, you may only have to deal with them for a short period of time. Some financial institutions offer you the chance to upgrade to a regular checking account after a year if you manage your account well. The temporary inconvenience may be worth it if you can regain access to traditional banking.
Are second chance checking accounts all the same?
Second chance checking accounts do not all have the same features. Some institution's accounts are better than others, so you should shop around. Look for accounts that come with most, if not all, of these features:
- Low monthly maintenance fees
- Low or no minimum balance requirements
- Free debit card access, online bill pay, and unlimited check writing
- Few limits around the amounts or number of your transactions on a daily or monthly basis
Be sure you read and understand the depositors agreement and account disclosures before signing up for any account. Once you do, the institution does not have to waive any fees it charges you if those fees were included in the documents you signed.
Is second chance banking right for you?
As mentioned before, there are alternatives to traditional banking but most come with a cost. Some companies are launching products that combine the features of prepaid cards and checking accounts. They work well if you are willing to have your paycheck directly deposited and all you want to do is pay bills, write checks, and make purchases with a debit card.
However, these alternatives do not help you repair your flawed banking history. Establishing a second chance checking account does. Plus, you may be able upgrade to a standard checking account at some point. Second chance checking accounts also allow you to build a relationship with a financial institution. Most institutions offer discounted rates on loans, credit cards, and other credit products if you have a checking account with them.
Another reason you may opt for a second shot at traditional banking is the convenience. Maybe you prefer to discuss issues or obtain banking advice from someone in person rather than over the phone. If so, then opening a second chance checking account at a local bank or credit union may be the way to go.
Where can I find a second chance checking account?
If you no longer have access to the banking world because of past mistakes, you are not alone. According to a 2015 FDIC survey, nearly 9 million American households do not have a banking account with an insured financial institution. Many of these are because of poor banking histories. Second chance banking may be a way for you and others like you to rejoin the traditional banking world.
Second chance banking with RiverTrace Federal Credit Union includes the following features:
- A way to pay bills to re-establish your financial stability
- Free rollover to Connections Checking if your account is open and clear for 12 months
- There is a $12 monthly service charge
- No minimum balance requirements
- Free Online Banking and unlimited Bill Pay
- Free Sprig® Mobile Banking
- Free ATM Card
- Free Audio Response Automated Telephone Service
- No per-check fees
- Direct deposit (required)