Customers can cash checks using check-cashing services without having a bank account. For those who may not be able to open a bank account or who may already have one but are unable to visit their bank when they need money, they offer simple access to cash.
Example and Definition of a Check-Cashing Service
You can cash payroll, government, and other checks using check-cashing services without a bank account. Usually, the money is available almost instantly. A national trade association, Financial Service Centers of America (FiSCA), represents the financial service centers that offer these services. There are roughly 13,000 financial service centers in the US, according to FiSCA. Over 350 million different products are transacted in these centers annually for a total of $106 billion. They offer fewer services than traditional banks, but they typically provide check cashing, money orders, electronic bill payments, ATM access services, payday loans, and other services.Note:
Most banks only cash checks from customers to prevent check fraud, although a few banks will occasionally do so for a fee.What is the Process of a Check-Cashing Service?
Six percent of American adults lack a checking, savings, or money market account, which is referred to as being "unbanked." Lack of a bank account can be caused by various factors, such as having unfavorable items in your ChexSystems report, not wanting to pay the associated fees, or local bank branch closures. To complete simple transactions like cashing checks, it frequently becomes necessary to use alternative financial services.Note:
In 2019, more than half of unbanked adults used an alternative financial service, like a loan from a pawn shop, money order service, or check-cashing service. Furthermore, 16% of adults were underbanked, which means they had a bank account but also used another service. Check-cashing services are available to assist the unbanked and underbanked turn their paychecks into cash at a convenient time and location (many are open around the clock). Payday loan providers, department stores like Walmart, and other financial services providers like Amscot offer them. They typically charge you a fee, typically a portion of the check's face value, for the service they must disclose. As an illustration, starting in March 2022, Walmart will charge $4 up to $1,000 and $8 for checks over $1,000 to be cashed. Even though those fees—0.4% or 0.8% of your total check, respectively—might not seem like much, other check cashers might charge more. Amscot assesses fees on the value of government checks up to 2.9 percent, tax refund checks up to 2.5 percent, and other payroll and handwritten checks up to 4.5 percent. You might pay as much as $45.50 if you cash a $1,000 payroll check at Amscot. You risk losing $1,170 in fees if you use the service to cash 26 paychecks a year.Warning:
Check-cashing fees reduce your income. Use it sparingly and seek low-cost services if you need one.Check-Cashing Services: Advantages and Drawbacks
Pros:- Offering unbanked and underbanked people financial services
- Make money accessible almost instantly.
- May demand very high fees
- Simple to fall into a cycle
- Can force customers to use unconventional financial services.
Pros Presented:
- Gives underbanked and unbanked people access to financial services: Customers who might not otherwise be able to open a bank account or have access to one when they need it can cash checks thanks to check-cashing services (when traveling or cashing a check after business hours, for example).
- It almost immediately makes money available. Additionally, check-cashing services can immediately put money in your hands for people who might be living paycheck to paycheck or have a rare financial emergency. You don't need to wait one or two days for the money in your bank account to clear.
Cons Explanation:
- May impose exorbitant costs: The amount of your hard-earned money you get to keep can be decreased by the exorbitant fees that check-cashing services frequently charge. Banks or credit unions typically do not assess check-cashing fees to account holders. It would be in your best interest to open a bank account as soon as possible because banks ultimately save you money on check cashing. Repaying any outstanding debts and reporting false negative information might be beneficial.
- Simple to get caught in a cycle: Sometimes, check-cashing fees can get so high that people cannot cover essential costs (rent, food, or transportation, for example). A person might keep using a check-cashing service and fall victim to a cycle as long as their dependence on quick cash endures.
- Consumers may be forced to use unconventional financial services: Check-cashing services' simplicity and convenience may discourage someone from ever opening a traditional bank account or taking advantage of the numerous free services and other advantages they provide.
Main Points:
- If you can't open a checking account due to past financial difficulties or can't get in touch with your bank and need cash immediately, a check-cashing service offers a way to convert checks into cash.
- Although it instantly makes money available, it has high fees that could reduce your income.
- It should only be a temporary solution until you get your finances in order and can open a bank account.
