What Is a Second-Chance Bank Account?

Fact checked by Brendan HarknessFact checked by Brendan Harkness

What Is a Second-Chance Bank Account?

A second-chance bank account offers basic banking features to people who don’t qualify for a traditional checking or savings account due to issues with previous bank accounts, such as repeated overdrafts or bounced checks. The types of second-chance bank accounts and the features they offer can vary depending on the financial institution.

Key Takeaways

• Second-chance bank accounts are an option for people who can’t qualify for traditional bank accounts because of previous problems with bank accounts.
• Banks use a tool called ChexSystems to assess your banking history when reviewing your application to open an account, and may deny your application if your report shows repeated overdrafts, bounced checks, and other issues.
• Approval for second-chance banking usually doesn’t involve your ChexSystems report.
• A second-chance bank account typically offers bare-bones services, sometimes with limitations and/or monthly fees.
• Second-chance banking allows you to build a positive banking history.

How Second-Chance Banking Works

When you apply for a bank account, the financial institution typically reviews your ChexSystems report, which provides a history of how you manage your bank accounts. 

If your ChexSystems report contains negative information, such as frequent overdrafts or bounced checks, an involuntary account closure, or an unpaid negative balance, banks may consider you a risky customer and deny your application. What’s more, negative items can remain on your ChexSystems report for five years.

Financial institutions that offer second-chance bank accounts typically don’t run a ChexSystems report check when you apply, so past infractions won’t be held against you. However, they’ll usually report account activity to the consumer reporting agency, which is crucial for establishing a positive banking history going forward.

“Financial setbacks or mistakes can happen to anyone, but their impact tends to be disproportionately felt by those already facing economic challenges,” says Gloria Garcia Cisneros, a certified financial planner and wealth manager at LourdMurray. “Second-chance banks [and other] financial institutions acknowledge the systemic barriers that certain individuals face and strive to level the playing field.”

Second-chance bank accounts tend to offer fairly basic banking features, so they may not be a good long-term solution, depending on your needs. For example, second-chance accounts may not offer paper checks or earn interest. But they can be a good way to build a stronger banking history and improve your odds of getting approved for a traditional checking or savings account with more features in the future.

If you’ve been denied a bank account due to inaccurate or incomplete information in your ChexSystems report, you have the right to get a copy of your report and file a dispute with the consumer reporting agency. Explain the reason for your dispute and submit any supporting documentation you have to support your claim, such as a police report, identity theft affidavit, or account statements.

What Is a Second-Chance Checking Account?

Depending on the financial institution, second-chance banking may involve just a checking account or both a checking and savings account. 

A second-chance checking account usually offers basic features, such as direct deposit, bill pay, and a debit card. However, some banks set restrictions on what you can do with your account. For example, you may not have access to overdraft protection or paper checks. The account may also come with monthly service charges, though you may be able to avoid these fees by receiving direct deposits from an employer or government benefit programs. 

That said, account features and fees can vary, and some second-chance accounts are even fee-free. It’s important to shop around and compare multiple options to minimize your costs and get the services you need to manage your money effectively. 

Bank On, an initiative of the national nonprofit organization Cities for Financial Empowerment Fund, encourages financial institutions to create second-chance bank accounts that enable more people to access banking services. You can review its list of certified second-chance accounts to find options that may work for you.

Pros and Cons of Second-Chance Banking

Pros Explained

• Minimal eligibility requirements: You don’t have to worry about your banking history influencing your odds of approval. 
• Access to critical banking features: Second-chance bank accounts typically won’t offer the same services as a traditional bank account, but you’ll usually get access to the features you need the most to manage your money, like direct deposit and ATM access. Not having these features can leave you unbanked or underbanked and force you to use costly alternative services, such as check-cashing stores, money orders, and payday loans to manage your finances. 
• Helps you rebuild your banking history: While second-chance accounts may not consider your ChexSystems report when you apply, the bank will typically report your activity, making it possible for you to get approved for a traditional bank account in the future.

Cons Explained

• Some banks restrict what you can do: Not all second-chance bank accounts are created equal, and with some financial institutions, you may not be able to get overdraft protection, use personal checks, or open a savings account.
• Fees: To help make up for the added risk, some banks may charge a monthly service fee, which may or may not be waivable.
• Potentially limited availability: Not all banks and credit unions offer second-chance banking, so you may need to do more legwork to find options to compare. 

Important

A second-chance account may also be called a simple account, a secure account, a foundation account, or other names, so it’s worth asking a customer service representative if you’re not sure whether a bank offers this type of account.

Frequently Asked Questions (FAQs)

What Banks Are Second-Chance Banks?

Many national, local, and online banks offer second-chance checking and savings accounts, but it’s not always easy to find these options. To help you get started with your search, here are some second-chance bank accounts from well-known banks:

• Chase Secure Banking
• Wells Fargo Clear Access Banking
• Chime Second Chance Banking
• Varo Bank Account

You can also check out Bank On’s list of accounts that meet its standards, which include a low minimum opening deposit, debit card, and low monthly fees.

Can I Open a Bank Account If I Owe Another Bank Money?

If you have a negative balance on a checking account, it can be difficult to open another bank account, particularly if your account was closed due to the unpaid balance. However, second-chance banks typically don’t consider your history with other financial institutions, making it easier to get approved.

Can You Open a Bank Account If You Are in ChexSystems?

Anyone who has used a U.S. bank account in the past likely has a ChexSystems report. If you have only positive information in your report, you’ll likely have no trouble opening a new bank account. If you have negative items in your ChexSystems report, however, you may have trouble getting approved for a traditional bank account.

Can I Open a Bank Account With Bad Credit?

Banks typically don’t run a credit check when you apply for a checking, savings, money market, or certificate of deposit account. So, if you have a poor credit score, that typically won’t be held against you.

The Bottom Line

If you’re having a hard time getting approved for a bank account due to past banking-related issues, second-chance banking can be your best bet to establish a positive banking history. Otherwise, you may be forced to consider alternatives like prepaid debit cards and check-cashing services, which can be costly and lack important features, leaving you unbanked. 

If you believe second-chance banking is right for you, take time to research and compare several options to ensure you’re getting the features you need with minimal costs. 

Read the original article on Investopedia.