If you have heard of ChexSystems, chances are it is not for a good reason. Most likely, you wish you did not know about their services. ChexSystems is a registry used by banks as a tool for recognizing bank account applicants whose banking history present some risk. It is often the reason behind a rejected application for a checking account.
ChexSystems documents instances where individuals have outstanding balances on checking accounts. The banks want to know if an applicant has been responsible in the past. I think the logic is that past behavior is the best predictor of future behavior. Therefore, the reasoning goes that if a person has written a series of bad checks in the past, then they may do so again. Bad checks are not the only reason people appear on the list. If an applicant still has an outstanding debt on a now-closed checking account, ChexSystems will flag it.
Many banks and credit unions use ChexSystems. Experts say that it may take as long as five years to have your name stricken from their list.
You can get a free copy of your ChexSystems report once a year. Call ChexSystems at 800.428.9623. Alternatively, you can request a copy online on their website.
People on ChexSystems can still get a bank account. For the most part, they have two choices. First, many banks have “second-chance checking accounts.”
On the other hand, several institutions offer checkless checking accounts. Some people refer to these accounts as “neobanks” because they eschew traditional branch banks in favor of a customer experience that is entirely digital. They do not pull credit, primarily because they design their accounts around a no-overdraft framework. Since it isn’t possible to overdraw your account, these checkless accounts feel comfortable working with consumers regardless of their credit status.
I feel that people should gravitate away from second-chance checking. Many of these accounts are the same as a traditional checking account, except they have higher fees than the neobank accounts. Most will charge overdraft or insufficient funds fees, and all of them charge a high monthly fee regardless of how the account is managed.
Let’s review the facts about some of the most popular second-chance checking accounts.
Woodforest National Bank: Although it may not be a familiar name, Woodforest is one of the largest providers of second-chance accounts in the country. They have branches inside Wal-Marts across the country. You will pay at least $9.95 per month to maintain an account. If you do not set up a direct deposit, you will have to pay a monthly maintenance fee of $11.95. It costs another $9.00 to open the account. The account has overdraft fees. Each overdraft or NSF costs $29.00
Wells Fargo Opportunity Checking: In terms of price, Wells’ second chance checking account is better than the one offered by Woodforest. Their account includes a monthly service fee of ten dollars. However, consumers have several ways to get their account waived. Wells drops the cost with a $500 direct deposit, a $1,500 minimum daily balance, or if the consumer makes at least ten purchases with their debit card. The main shortcoming with the account is the hefty $35 overdraft fee. You will need to apply for a regular account first. If you are denied, Wells may offer its second-chance product as a turn-down option.
BBVA ClearConnect Checking: BBVA’s second-chance checking account has no monthly service fee. However, they charge $38 if you overdraw your account. If you close your account within six months of opening it, BBVA will apply a $25 early account closing fee. Ouch. You have to make an initial deposit of $25, so if you no longer have another account, you will have to go to the branch.
The Better Options
Instead of applying for a second-chance account, avoid the fees and get a checkless checking account. These accounts are growing in popularity. Chime now says it has over one million active accounts. Chime is one of several national accounts that provide a full-service bank account via an all-digital experience. My favorites, in addition to Chime, are Varo Money, Empower, and Simple.
You can use your desktop to access your Simple and Chime account, but the others are designed solely for use via a smartphone.
These four share a lot in common. All are virtually fee-free. They do not have overdraft or NSF fees. If you accidentally attempt to spend more than you have, you will be protected. Varo Money and Empower also offer optional high-yield savings accounts. Simple has a goals account, which is technically not a savings account but still something that can produce interest. Chime has a savings account, but it currently pays only .01 percent interest. Varo and Empower each pay more than 2 percent, regardless of your account balance.
With a neobank account, you will earn interest on savings, but you will not get a book of paper checks. Empower offers 1 percent cash back on the first $1,000 in debit card purchases every month. Varo Money and Chime both can let a worker access a direct deposit of pay up to two days earlier than usual.
These accounts sound great, and in fact, some people assume that they are too good to be true. I understand their perspective, as their experiences with traditional banks have soured many people. The fallout from the financial crisis still influences how many people think. Nonetheless, neobank accounts are that good. Recently, I helped a person on ChexSystems get a Varo account. He was surprised when he was approved. Now he has the benefit of an excellent account, without having to worry about paying high fees.
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