A second chance checking account can help those with negative past banking history access banking services. It can be a place to deposit and spend money, though it may not offer all the features of a standard checking account.
These second chance checking accounts can be an important step for many people on their journey to enjoying full banking privileges. Learn more about them here.
Who Is a Second Chance Banking For?
Second chance banking can help those who have negative marks on their past banking record. To understand this, it’s important to know a bit about what ChexSystems is. Think of it as the banking equivalent of a credit bureau. It catalogs information on consumers’ banking histories, including basics like name, contact information and Social Security number, as well as information on account closures, bounced checks and overdrafts, unpaid balances, suspected fraud, and more.
When a customer applies for a new checking account at a bank or credit union, the institution may look up the ChexSystem report to determine whether or not it’s willing to extend its services. Negative report items — such as unpaid overdrafts, involuntary account closures, or a high number of recent inquiries — can cause a bank to refuse regular checking services to the client.
That’s where second-account checking comes in. A second-chance bank account is one where the bank offering the account is willing to overlook a less-than-stellar banking history. This means a client can continue to use a bank account while rebuilding their ChexSystem report.
While this type of account isn’t available at all banks, it is available at many, including some major traditional and online banks, like Wells Fargo, Chime, and Varo.
In other words, an imperfect banking history doesn’t have to mean living an unbanked existence.
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How Does Second Chance Banking Work?
Here’s how second chance banking operates: much like any other regular checking account. The account holder deposits money into the second chance checking account, which they can then access using a debit card or making a withdrawal at an ATM.
Specific account features will depend on which institution is offering the account. For example, some banks may offer free paper checks, and many have convenient mobile banking features.
However, some banks may charge monthly service fees or minimum opening deposits, and may not allow second chance checking account holders to use paper checks. And although checking account interest rates are notoriously low, it’s unlikely your second chance checking account will accrue any interest at all.
That’s why, as when opening any other kind of bank account, it’s important to review the fine print closely to ensure you know what you’re getting into before you apply.
Applying for one of these accounts typically works in the same way as opening a bank account of any kind.
• The bank will ask for a variety of personal information, and you may be asked to verify your identity with a form of official identification like a driver’s license or Social Security card.
• You can do this in person or entirely online.
• Depending on the institution, you may be required to put down a minimum initial deposit. However, in many cases, you will find second chance checking with no opening deposit, meaning the account will be 100% free.
• You may need to wait a few business days for your application to process, and then you should be in.
Recommended: How to Set Up a Bank Account
Once you’ve opened a second chance checking account, you can use it as normal to pay bills, restaurant tabs, and grocery store totals — whatever expenses come up in your day-to-day life. Meanwhile, the negative items that might be on your ChexSystems report will slowly vanish. Most records fall off after five years.
If you’re interested in cleaning up your ChexSystems report, know this:
• Consumers also have the right, under the Fair and Accurate Credit Transaction Act (FACTA), to request a free ChexSystems report once a year. A request can be made by phone, mail, fax, or online form, allowing review of the report for any incorrect negative items and disputing them.
• If you do dispute something on your record, the investigation will generally take about a month. You will receive a letter in the mail notifying you of the results.
Over time, it’s possible to clean up a ChexSystems record — which can unlock the ability to pursue other types of banking services, including high-interest deposit accounts.
Recommended: Guide to Reopening a Closed Bank Account
Pros and Cons of Second Chance Banking
While second chance banking does provide a valuable service, there are some drawbacks to these accounts as well. Here are the pros and cons of second chance checking accounts.
Pros:
• Allows clients to use a checking account even without a perfect banking history.
• Gives account holders time to rebuild their banking history and let negative items fall off their ChexSystems report.
• In many cases, second chance checking accounts are free and don’t require a minimum opening deposit.
Cons:
• Some accounts may assess monthly bank fees and have minimum opening deposits — and may not offer waivers.
• The account may have limited capabilities (such as an inability to use paper checks or to access overdraft protection).
• The account is unlikely to offer interest growth on account balances.
Alternatives to Second Chance Banking
Second chance checking accounts are a solid option for those who might not be able to open a traditional checking account because of their banking history. But they’re not the only alternative. Here are two options:
• Prepaid debit cards. A prepaid debit card can be used to pay bills and other expenses without using cash. It works like a gift card: Clients load the card with a certain amount of money, which they can then use as they see fit. The cards are also reloadable, making them a fair option for working around the handicap of not having a bank account.
What’s more, many prepaid debit cards don’t require a credit check to open. This makes them a viable choice for those with poor credit histories as well as poor ChexSystems reports.
That said, there are pros and cons of prepaid debit cards. In terms of downsides, they often include a variety of fees — such as monthly maintenance fees, activation fees, and reloading fees — which can eat into the user’s balance and make them unsustainable for long-term use.
• Cash. Others who find themselves unbanked might try to simply pay their way through life using cash. After all, you can often get a paycheck cashed at the nearest major grocery store or retailer.
However, there are downsides: Check-cashing services generally come with a fee. Plus, many utility companies, landlords, and other bill collectors don’t accept cash as payment. And if your cash is lost or stolen, there’s no reliable way to get it back. It’s gone.
The Takeaway
Second chance bank accounts can help those who are unable to get a standard bank account. While it doesn’t have all the features of typical accounts, it can offer a path to being banked and graduating to a full-fledged checking account.
When you’re ready for a typical checking account, see what SoFi offers.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
What is second chance banking?
Second chance banking is a kind of account that serves people who may not have a perfect banking record. If you have negative items on your ChexSystems record, you may still qualify for this kind of account.
What is a second chance bank account?
A second chance account is one that can be opened even if you have a less than perfect history with banking. It may have some downsides (monthly fees plus no overdraft protection, for example), but it allows people to get back in the game and have checking privileges.
Who is second chance banking for?
Second chance banking is for people who have negative items in their banking history. These typically include unpaid overdrafts, involuntary account closures, and other events which show the account holder did not use their privileges responsibly.
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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
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