Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Underbanked

What it is:

A person is underbanked when he or she does not participate in the banking system very much and instead relies on the use of cash rather than checks or credit cards.

In the securities world, underbanked can also mean that the underwriter of a security offering is unable to get more financial institutions to join the underwriting syndicate.

How it works (Example):

For example, let's assume John Doe is poor and does not trust banks. He cannot afford the monthly fees of a checking account, and so he uses cash and cashiers' checks from the local bank to pay his bills. John Doe could operate more efficiently with a checking account, a savings account, and maybe a debit or credit card, but he chooses not to have those things. He is underbanked.

Why it Matters:

The Federal Depository Insurance Corp. (FDIC) surveys the nation's underbanked and unbanked frequently. Approximately 20% of all households are either unbanked (they do not use banks at all) or underbanked (they use banks only on a limited basis).