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What is a second-chance checking account?
Managing money is tough for most people, but it's even harder when you don't have a bank account.
If you've been turned down for a checking account, you probably have to go to great lengths to complete your day-to-day financial transactions. You might be using a combination of prepaid cards, payment apps like Venmo, and expensive check-cashing services.
Instead of running in circles, there's a simpler solution for people who need a bank account: second-chance checking. Even if you've had past problems with bank accounts, you can still qualify for one of these accounts.
Read more: Here's what to do if your bank account application was denied
How do second-chance checking accounts work?
Second-chance checking accounts, sometimes referred to as opportunity checking accounts, are accounts designed specifically for people who don't qualify for regular banking options.
If you've had problems with a bank account in the past — perhaps you or a joint account holder bounced checks, overdrafted multiple times, or didn't pay bank fees — many banks will look at that history and determine that you don't qualify for a new account.
But when you apply for second-chance checking, you quite literally get a second chance to use a bank account. When evaluating your application, the bank will either skip the review of your consumer banking reports like ChexSystems or Early Warning Services, or they'll approve you regardless of your checkered past.
For some second-chance checking accounts, all you need to qualify is a Social Security number, a government-issued ID, and a physical address.
Read more:
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What is ChexSystems, and how do you find out if you're listed?
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What is Early Warning Services, and what's in your EWS report?
Second-chance checking accounts vs. alternatives
For someone who doesn't qualify for a regular banking account, a second-chance account is one of the best options available. These low-cost bank products give you a safe place to store your cash, and they make it easy for you to receive paycheck deposits and pay bills.
Here’s a look at how second-chance checking accounts compare to the alternatives.
Traditional checking
According to an FDIC survey of nearly 30,000 households, some of the biggest barriers to opening a bank account include high bank fees, not having enough money for the minimum balance, and past problems with banking.
Unlike traditional checking accounts, second-chance checking accounts remove those barriers. They may lack some of the features you get with traditional checking accounts, but they have fee structures that can make them more attractive, and they're easier to qualify for.
Here's how second-chance accounts are different from regular checking accounts:
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Easy qualification: Negative information in your ChexSystems or Early Warning Services banking reports won't stop you from opening an account.
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More affordable: They have lower monthly fees and low-to-no minimum balance requirements. Non-waivable fees are usually limited to $5 a month, and the minimum opening deposit is often $0-$25.
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Fewer features: Overdrafting is usually not allowed. Depending on the account, you might not be issued checks or a debit card, or your debit card transactions may be limited, but these restrictions are rare.
If you use your second-chance checking account without any problems, another benefit is that the bank may eventually allow you to open a regular checking and savings account.
Read more: The 10 best free checking accounts available today
Mobile payment apps
If you don't have a bank account, you might consider using mobile payment apps such as Venmo, Paypal, or CashApp to send bill payments and even receive your paycheck deposits. However, these apps are not as affordable or safe to use as second-chance checking accounts.
For one, mobile payment apps usually don’t provide deposit insurance. They also lack the strong consumer protections you get with bank accounts. If you send your money to the wrong person, for example, you likely won't be reimbursed.
You'll also pay fees and face other obstacles if you want to complete various day-to-day financial transactions with a mobile payment app. For example, you can visit a Walmart to add cash to your Venmo account, but you'll be charged a $3.74 fee, and you can't add more than $500 per transaction.
Read more: Is it safe to store money in apps like Venmo, PayPal, and Cash App?
Prepaid cards
A prepaid card can be used to make purchases and receive deposits. They also help with budgeting because your spending is limited to the cash already loaded onto the account.
Then again, they can hurt your budget, too. Prepaid cards usually come with a long list of fees, including fees for activation, monthly maintenance, cancellation, and for a variety of transactions. Fees for withdrawing cash at major retailers are also becoming more common, according to the CFPB.
As a result, prepaid cards cost much more to maintain than second-chance checking accounts, and they don't have the benefit of helping you improve your banking history. Plus, unlike with a debit card, all of the money in your account could be gone for good if you lose a prepaid card.
Read more: Prepaid card vs. debit card: What's the difference?
Check-cashing services
If you don't have a checking account, cashing a check can be a problem. One solution is to visit a retail store or bank that offers check-cashing services, but their fees can be exorbitant. You might pay anywhere from $10 per check to 5% of the check amount.
By comparison, there's no charge for depositing a check into your second-chance checking account, and you might even be able to deposit it online by using mobile check deposit. Better yet, you can set up automatic deposits for most checks.
Read more: Where to cash a check if you don't have a bank account
Where to find second-chance checking accounts
You can find second-chance checking accounts at loads of banks and credit unions. For an account with no minimum balance requirement, and with either a waivable $5 per month fee or no monthly fee at all, here are a few choices:
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Chime Second Chance Checking
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PNC Foundation Checking
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Varo Bank Account
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Wells Fargo Clear Access Banking
For other options, you might have to do a bit of research. Some accounts have creative names and their marketing doesn't explicitly mention "second chance" checking, so it might not be obvious that they're built for that purpose. If you want to find an account with a credit union in your area, search to see who offers approval on a checking account, regardless of the information in your ChexSystems or EWS reports.
