Second Chance Bank Account: Bank Accounts For Bad Credit

FT Contributor  | 

A bank account is a vital tool for managing your finances. A checking account is necessary for tracking spending, while a savings account helps you earn interest and build a nest egg. Your money is also safer in a bank account since most banks have coverage from the Federal Deposit Insurance Corporation (FDIC).

Most lenders require that you have a bank account before they consider your application for a loan. However, if you have bad credit or a poor financial history, banks may not let you open an account.

Banks will usually check your credit history before deciding whether to approve your request for an account. In addition to credit checks, banks use ChexSystems to find out about any account freezes, overdrafts, and bad checks you might have written in the past. Based on this information, a bank can refuse to approve your application for an account.

If you don’t pass these checks, it can be nearly impossible for you to get a regular checking or savings account. However, some banks offer “second chance” accounts for people who can’t qualify for a regular account.

What Is a Second Chance Bank Account?

A second chance bank account is a banking account that you can open if you suffer from an adverse banking history. For example, if you had to close a bank account due to a negative balance or non-payment of overdraft fees, you may need to open a second chance account.

How do banks handle the increased risk associated with such accounts? Second chance bank accounts, especially second chance checking accounts, typically have monthly fees. Unlike traditional checking accounts, you can’t avoid these fees. Some banks even require you to take money management classes.

These accounts do not have some of the features that are common in regular bank accounts, such as overdraft protection. Banks will offer you a path to a regular account. Some require that you have a second chance account for six months or one year before you qualify for a standard account. Also, you should be aware that a second chance bank account will help with your banking history, but not with your credit score.

Despite all these drawbacks, second chance banking accounts are a better choice than the alternatives, which typically include check-cashing services with high fees and prepaid debit cards that lack some of the essential features of a regular bank account.

Types of Second Chance Bank Accounts

Second chance accounts are usually checking accounts, though some banks offer savings accounts as well. The type of account you use depends on your needs and financial plans.

Second chance checking accounts are similar to standard checking accounts, but they have fewer features. Banks reduce the number of features to limit their risk. In general, second chance checking accounts have lower monthly fees than standard checking accounts. However, most standard accounts offer waivers that help account-holders avoid these fees. Such waivers are unavailable for second chance checking.

Second chance checking accounts also have lower withdrawal and debit limits than standard checking accounts. You may have to make a security deposit when opening the account, and you cannot use paper checks. Finally, overdraft protection isn’t available for these accounts.

Second chance checking accounts offer online banking, just like regular checking accounts.

Some banks also offer second chance savings accounts. These typically do not offer interest or they have very modest interest rates. Some are just like checking accounts that have debit cards but require that you keep a minimum balance in the account. Banks typically offer a regular, interest-bearing savings account to customers who successfully manage a second chance savings account for six months or one year.

Pros and Cons of Second Chance Bank Accounts

You should weigh the pros and cons of second chance bank accounts before deciding if they are the correct option for your financial needs.

Pros:

  • You can open a second chance checking account even if you have a poor banking history.
  • A second chance checking account allows you to upgrade to a standard checking account after six to 12 months of positive activity.
  • With most second chance checking accounts, you can track spending and balances online and receive notifications for low balances.
  • Banks design these accounts to limit the danger of overdrafts or other incidents that could negatively impact your banking history.
  • After you successfully manage your account for five years, your ChexSystems banking history will be clean with no evidence of your past adverse banking history.

Cons

  • There are unavoidable monthly fees for most second chance checking accounts.
  • Some banks will charge additional fees or require a security deposit if you want to set up a debit card.
  • Most banks don’t allow checks and limit withdrawals and transfers for second chance checking accounts.
  • You may need to keep a minimum balance in your account.

National Second Chance Bank Accounts

Some second chance accounts are available nationwide via large banks.

Wells Fargo Opportunity Checking:

Wells Fargo Opportunity Checking is an attractive option because of the low initial deposit requirement. You only need $25 to open a second chance account. However, these accounts have a high monthly fee of $10. Unlike most second chance accounts, though, you can avoid this fee if you use the debit card 10 or more times within the month, hold a minimum account balance of $1,500, or make deposits of at least $500.

Opportunity checking allows overdrafts, but they come with an overdraft fee of $35. You also pay between $2.50 and $5.00 for using non-Wells Fargo ATMs.

Chime Bank:

Chime bank doesn’t explicitly offer a second chance checking account. However, it doesn’t check your ChexSystems report or your credit report when you open an account. Because of the lack of checks, just about anyone can open an account at Chime Bank.

With each checking account, you get a Visa debit card for free and online banking via the mobile app. There is no initial deposit requirement, and the account does not have any regular fees. You can also opt to open a savings account with your checking account.

United Bank Gateway Checking:

United Bank offers a second chance checking account as a “gateway” to their standard checking accounts. There is no minimum balance or initial deposit required, though there is an unavoidable $10-a-month fee. You also get a smartphone app and mobile check deposit. You will, however, have to pay extra for checks and online bill pay. After six months of positive activity, customers may upgrade to a standard United Bank checking account.

Radius Essential Checking:

The initial deposit for an Essential Checking account is $10. You get mobile and online banking, a free debit card, and access to a suite of personal finance apps. There is a $9-per-month fee, and you will not have any opportunities to waive it.

Radius allows overdrafts, but you will get hit with a $25 insufficient funds fee for each overdraft. You also have to pay a $5 daily overdraft fee. After 12 months of positive activity on the Essential Checking account, customers are eligible to upgrade to the Radius Reward Checking account with standard features.

Go Bank:

Go Bank Online Checking is a service offered by Green Dot Bank, which is exclusively an online bank. Go Bank does not check your credit history or ChexSystems report. They also offer some of the perks of a standard checking account, including overdrafts and mobile banking with mobile check deposits.

There is a monthly fee of $8.95, which you may be able to avoid by making direct deposits of $500 or more every month. You will pay a $2.50 fee for using non-network ATMs and an up-to-$4.95 fee for deposits made through a retailer.


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