If past financial trouble has prevented you from opening up a checking account, you have another option: a second-chance bank account. These usually have some restrictions, including a monthly fee, but you can save money long-term, especially if you’re using check-cashing businesses with high service fees.
Why you might need a second chance checking account
Some banks and credit unions offer second chance accounts to customers who’ve had previous checking accounts closed due to excessive overdrafts, unpaid fees, or carrying a negative balance.
Having your account closed by your bank can put you on a blacklist maintained by ChexSystems, a consumer reporting agency that does bank account screening. ChexSystems can keep your name on file for up to five years as a high-risk bank customer, making it even harder for you to get a traditional checking account at other banks.
Second chance bank accounts differ from traditional accounts as they don’t screen customers based on ChexSystems, which means that banks won’t be looking at your troubled banking history.
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Advantages in having a second checking account
The perks that come with a second chance checking account will help you stay organized and save money—you can take advantage of free check cashing, direct deposits from an employer, special customer benefits or offers, and keep your money safe where it will be backed with FDIC insurance. Also, many of these accounts don’t require you to maintain a minimum monthly balance as you often do with traditional checking accounts.
(Another option for customers with low credit scores are prepaid debit cards , which are worth considering as they can have comparable monthly fees. However, they also require hefty deposits, can come with an assortment of additional fees, and they don’t have the money management tools that you get with a checking account).
Importantly, second chance banking can break you free from needing to use check-cashing services, which can charge a percentage of your check being cashed—between 1-12% (sometimes it’s a flat amount, too). The bigger the check, the more money you lose—often well over what you would pay in a monthly bank fee for a second chance bank account.
Disadvantages to a second chance checking account
These accounts are stripped-down versions of traditional account, so you might have some restrictions depending on what’s being offered, including:
- Monthly fees, which tend to range between $5 and $10.
- Small minimum opening deposit, usually around $25 (unfortunately this, combined with monthly fees, can be a barrier for some lower-income earners).
- Lower withdrawal and debit limits.
- No overdrafts or overdraft transfers.
- Transaction limits.
- No checks.
The good news is that it’s easy to shop around for a good deal, as restrictions on these accounts can vary. Some might have no monthly fees, or offer check-writing, for example.
Where to find second chance checking accounts
Major banks don’t have a lot on offer, but you can find second chance banking through smaller banks and credit unions (Nerdwallet has a good breakdown of what’s currently available nationwide). Remember that these banks will often have their own brand names for second chance accounts, so look for descriptions like “Opportunity Checking,” “No ChexSystems,” or “Fresh Start Checking.” If you’re ever unsure if a major bank offers second chance banking, simply call them and ask.
