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Second-chance bank accounts: What it is and where to open one

These accounts might give you a shot if your banking history isn’t squeaky clean.

A second-chance checking account could help you gain financial ground if you have a poor banking history, such as unpaid fees or too many overdraft incidents. These accounts are aimed toward people who have been denied access to a regular checking account. The downside is that they come with unavoidable monthly fees, which can eat into your budget.

How do second-chance bank accounts work?

Second-chance checking accounts are designed specifically for those who have a bad banking history or negative marks on their ChexSystems report, such as unpaid fees and multiple overdrafts or non-sufficient funds incidents. They’re offered by banks when you’re denied a traditional bank account, as they don’t check your banking history when you open one.

Second-chance accounts are aimed to help account holders rebuild their banking history by avoiding issues like overdraft charges and negative balances. They do this by declining transactions when you don’t have enough funds, so you can steer clear of fees and negative marks on your ChexSystems report.

What is ChexSystems?
ChexSystems is a credit reporting agency under the Fair Credit Reporting Act. Similar to the major credit bureaus, it gathers the details of your banking history focused on deposit accounts — such as savings and checking accounts. It generates a report over the most recent five years for banks to review before approving you for an account. If your report is littered with negative marks, it can impede your ability to get a traditional account for years, depending on the severity. Also, like credit bureaus, ChexSystems is required to provide you with one free copy of your report each year.

Can I use a prepaid card instead?

You could use a prepaid debit card instead of getting a second-chance bank account — but it’s likely to cost you more money in the long run. You must load money onto the card, and they come with a myriad of fees you won’t find with traditional debit cards.

Fees you’re likely to find with many prepaid cards include:

  • Monthly fees
  • Transaction fees
  • Out-of-network ATM withdrawal fees
  • Balance inquiry fee
  • Cash reload fees
  • Bill payment fees
  • Card cancellation fee
  • Card replacement fee
  • Inactivity fees

If you’re in a tight spot and can’t get a bank account immediately, a prepaid debit card can help. However, for the long-term though, the extra fees can really add up.

Pros and cons of second-chance accounts

Second-chance bank accounts can offer you a bank account until your ChexSystem report clears up, but they come with a few cons to watch out for.

Pros

  • Avoid overdraft fees. Most second-chance accounts don’t come with overdraft fees because they don’t allow the account to be overdrafted. They simply decline charges so your balance doesn’t fall below $0.
  • Cheaper than prepaid cards. Despite having unavoidable monthly fees, they’re often a cheaper alternative to prepaid debit cards.
  • Upgrades available. Most banks let you upgrade your second-chance account to a regular checking account once you’ve built up six to 12 months of good banking history.

Cons

  • Unavoidable fees. Monthly fees are usually unavoidable, unlike traditional checking accounts. Most second-chance accounts charge $5 per month and require a $25 opening deposit.
  • Low spending limits. Expect lower daily spending and withdrawal limits than you would with a regular checking account.
  • Can’t apply for it directly. Most banks only offer you a second-chance checking account once you’ve been rejected for a regular one.
  • No check-writing privileges. Most don’t come with a checkbook or they limit the number of checks you can write.

Second-chance accounts by bank

There are different types of second-chance accounts available, suiting different needs.

Accounts with no opening deposit

  • Wells Fargo Clear Access Banking — Comes with no minimum balance requirement and no overdraft fees. There is a $5 monthly service fee that the primary accountholder can avoid if they’re between 13 and 24 years old.
  • Chase Secure Banking℠ — Features no overdraft fees or minimum opening deposit, but there’s a monthly service fee of $4.95. It also comes with credit and identity theft protection, and budgeting tools with the Chase banking app.
  • Dave Spending Account — This mobile fintech-owned account has no minimum opening deposit and no overdraft fees, but there’s a $1 monthly fee. The app offers paycheck advances if you qualify for its Instacash feature.

Free accounts

  • Dora Financial Everyday Checking Account — Requires no minimum opening deposit to open, no monthly service fees,and no overdraft fees.
  • Chime Checking Account — This fintech checking account has no opening deposit requirement, no monthly fees and an optional overdraft service called SpotMe that allows you to overdraft up to $200 with no fees. You can also get a free optional savings account when you sign up.
  • Varo Bank checking — It features no monthly fees or minimum deposit requirements, early paydays and free access to a network of 55,000+ ATMs. However, you don’t get a checkbook and you can’t do wire transfers.

Business accounts

  • Bluevine Business Checking — Bluevine is a fintech with banking services that doesn’t use ChexSystems. There are two plans: A free Standard plan, or the $95 monthly Premier plan. Both plans don’t charge overdraft fees, foreign transaction fees or incoming wire transfer fees, and you’ll get unlimited transactions. The free plan offers 2% APY on your balance up to $250,000 with activity requirements, and the paid Premier plan offers a very high 4.25% APY with no activity requirements. However, there’s a 2.9% transaction fee for bill pay, and cash deposits with Green Dot have a $4.95 fee.
  • Mercury — Mercury isn’t a bank, and its banking services are provided by Choice Financial Group and Evolve Bank & Trust — both FDIC members. It doesn’t perform any credit checks when you apply, there’s no required deposit, no overdraft fees and free USD wire transfers.

Other second-chance accounts

  • PNC Foundation Checking Account — Designed for those who don’t qualify for a typical checking account, it requires a $25 deposit to open and a $5 monthly service charge. There are no overdraft fees or returned items fees. And if the primary or second owner is over the age of 62, the monthly service charge is waived.
  • U.S. Bank Safe Debit Account — This second-chance account has no overdraft fees and mobile banking perks like credit monitoring. But you can’t issue checks with this account and it requires a $25 deposit to open and a $4.95 monthly service fee that can’t be waived.
  • Bank of America SafeBalance — This second-chance, limited account also features no overdraft fees, and requires a $25 deposit to open. There is a $4.95 monthly maintenance fee that can only be waived if you’re a qualifying student, under 18 years old or you qualify and are enrolled in Preferred Rewards.

How to pick a second-chance account

When deciding which to choose, look for some or all of the following features:

  • Low opening deposits. Find an account that supports your budget out the gate.
  • Minimal fees. Look for an account with low or no monthly maintenance fees. Some banks waive fees if you enroll in direct deposit, maintain a certain balance or are of a certain age.
  • Accessibility. Strong accounts that offer ATM access, autopay and mobile banking will offer easier everyday banking in the long run.

Second-chance checking account alternatives

If you’re not keen on opening a second-chance checking account, here are some alternatives to consider.

  • Digital bank accounts. You might have a higher chance of opening a checking account at an online bank like Chime, SoFi and Varo, as they don’t use Chexsystems reports when reviewing applications.
  • Prepaid cards. Prepaid cards don’t check your credit or your banking history, so they’re ideal for those with no credit or bad credit or if you’ve been denied a traditional account. Most come with monthly fees attached. The best prepaid cards give you ways to reduce or eliminate this fee completely.

Bottom Line

If past financial mistakes have made it difficult for you to open a new checking account, there’s still hope. There are several quality banks out there that offer second-chance checking accounts for those who have endured bankruptcy, bad credit or a poor history with ChexSystems. Compare your bank account options to find the right account for your needs.

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