More than 7 million households lacked bank, credit union accounts in 2019: FDIC

Roughly 7.1 million U.S. households did not have an account with a bank or credit union in 2019, according to a report released Monday by the Federal Deposit Insurance Corp. (FDIC).

Last year, 5.4 percent of U.S. residents was “unbanked,” the FDIC reported in its biannual survey of how American households interact with the financial system. The unbanked rate fell 1.1 percentage points from 2017 and has declined in every survey conducted since 2011.

The FDIC estimated that of the 124.2 million U.S. households with a bank or credit account in 2019, roughly 1.5 million did not have one in 2017. The survey was conducted with the Census Bureau in June 2019 and received responses from nearly 33,000 households.

“It is encouraging that a record number of households had bank accounts in 2019, though we continue to pursue actions to create a more inclusive banking system,” FDIC Chairman Jelena McWilliams said in a statement.

“New products and technologies have the potential to bring even more people into the banking system and the FDIC will encourage this important innovation,” she added.

The FDIC attributed half of the decline in the unbanked rate to improving economic conditions.

“In particular, improvements in annual income, monthly income volatility, employment status, home ownership status, and educational attainment” were among the biggest drivers of the decline, said Karyen Chu, chief of the banking research section at the FDIC’s Center for Financial Research, during a call with reporters.

The unemployment rate declined from 4.3 percent in June 2017 to 3.7 percent in June 2019 — then a nearly 50-year low — and the poverty rate fell to 10.5 percent last year, its lowest recorded level since government estimates began in 1959.

The FDIC also reported sharper declines in the percentage of unbanked Black, Hispanic and Native American households, the three racial and ethnic groups with the highest historic unbanked rates.

The Black unbanked rate fell from 16.8 percent in 2017 to 13.8 percent in 2019, the Hispanic unbanked rate fell from 14.4 percent to 12.2 percent, and the Native American unbanked rate fell from 18 percent to 16.3 percent. The White unbanked rate ticked down from 3 percent to 2.5 percent and the Asian unbanked rate fell from 2.6 percent to 1.7 percent.

Despite the general improvement of the economy over that time, economic issues were the primary reason that unbanked households did not open accounts with banks or credit unions.

Not having enough money to meet minimum balance requirements was the primary reason cited by unbanked respondents. Nearly 30 percent of those without bank accounts blamed a lack of money as the main reason, and nearly 49 percent said it was at least one factor behind their lack of a bank or credit account. Mistrust of banks was the second most-commonly factor cited as the main reason for not having a bank account, at 16.1 percent.

A lack of bank or credit union access can drastically limit a household’s financial options and flexibility, particularly in times of hardship. Unbanked households often lack the ability to pay for items and cover expenses without sufficient cash on hand, and are often forced to turn to high-interest short-term loans for credit.

The FDIC warned that the economic devastation caused by the coronavirus pandemic could cause the unbanked rate to rise this year, potentially deepening the financial peril facing millions of households.