The term underbanked refers to individuals or families who have a bank account but often rely on alternative financial services such as money orders, check-cashing services, and payday loans rather than on traditional loans and credit cards to manage their finances and fund purchases. This may be because they lack access to convenient, affordable banking services or because they need or prefer to use alternatives to traditional financial services.

People who have a bank account but also tap into alternative financial services such as short-term payday loans, check-cashing services, and prepaid debit cards, are typically referred to as the underbanked. Some households are considered unbanked because they don’t use banks or financial services at all. Many people who are classified as underbanked may also have a language barrier, such as migrant workers, be unable to access banking facilities due to distance, such as the elderly, or simply feel uncomfortable using automated teller machines.

Households with less predictable and more volatile incomes were more likely to be underbanked than those with a steady paycheck, according to the FDIC study. Those with volatile incomes were also more likely to report problems accessing funds in a bank account, with younger adults (18%) and minorities (19% of Black people and 17% of Latinx people) encountering trouble more often than older adults (8%) or Whites (11%), according to the Federal Reserve report. Financial service providers could help solve problems with access to founds by making income available more quickly and the payments process more transparent so that repeated overdrafts don’t result in even further delays for deposits.