Check cashing services provide an alternative way to access your money without a bank account. These services allow you cash paychecks and other types of checks for a fee, but this can often be very expensive in the long run depending on how much is cashed throughout the year.
These are services that people can use who either do not have a bank account or need cash quickly. They may be used by millions of Americans to get access to their paycheck without going through the hassle and inconvenience of opening up an actual banking service with regulations, fees, etc.
Knowing your options before using a check-cashing service can help you decide if it’s the right choice for you.
What Are Check-Cashing Services?
Check-cashing services are not banks. They offer a range of simple transactions and consumer finance products, such as check cashing, money orders, electronic bill payments and small loans. Some companies in this industry also offer payday loans or payday advances.
The number of financial service centres in the United States is approximately 13,000. The industry trade group representing these companies estimates that those 13,000 locations provide $106 billion worth of services per year to 30 million customers annually.
Along with stand-alone check-cashing companies, some retailers like Walmart offer the service as well.
How Do Check Cashing Services Work?
Instead of depositing the check into a bank or credit union account, you walk out with immediate cash. Some services also offer prepaid cards to help users budget their money better and avoid overdraft fees while maintaining access to funds through an alternative payment method.
There are two main ways to deposit a check at the bank: in person or by mail. If you want access to your money more quickly, consider using cash-checking services that provide same-day funds without waiting for the check’s approval from banks.
There are fees associated with check-cashing services. For example, Amscot charges 2.9% to cash government checks over $1,500 and 9.9% for personal checks or money orders depending on the state you’re in as well as whether it’s a local computer-generated payroll check or not and if it is under $1000 then they charge 4.5%.
Using a check-cashing service may cost you more than it’s worth. For example, if the cashing fee is 2%, and I get $1,500 as my paycheck every two weeks (26 paychecks), that would be around 780 per year in fees.
That means I’d lose out on almost 800 dollars compared to keeping the money deposited into an account with no such fees. It makes much more sense for me to keep all of this extra money instead by opening up a checking account so there are absolutely zero costs associated with depositing or withdrawing from it.
In the past, check-cashing services tended to be useful for a small number of types of customers.
- People who do not have a bank account. Check cashing services could offer a form of alternative financial service for those who can’t open bank accounts.
- People who need immediate cash. FiSCA reports that 60% of their customers have a bank account, but they still choose to use check-cashing services for convenience or other reasons.
- People who need convenient financial services. People who live in underbanked neighborhoods and those with a busy schedule may consider check-cashing services. Check-cashing stores are located nearby where people need them, some even open 24/7 so that customers can cash their checks without having to worry about banking hours.
What Are Some Alternatives?
Check cashing services offer a service to millions of consumers that allows them quick access to cash. However, operating outside of the banking system can also cause people who use these services to pay additional costs and be exposed to extra risks and vulnerabilities as they are not using traditional banks or financial institutions.
People who do not have significant savings may struggle with hundreds in check-cashing fees per year which will impact their income more substantially than those already living paycheck-to-paycheck.
If you have a bank account, consider these options if you’re interested in saving money:
- Second chance checking accounts: There are options if you have been rejected from opening a bank account due to negative history. Some banks offer second chance checking accounts which can help people get back into the financial system and start fresh.
- Mobile check deposit: Mobile check deposit tools are becoming more popular as banks and credit unions offer them to their customers. If you don’t have time to go into a branch, or if the branches aren’t open at convenient hours for your schedule, there are plenty of ways that allow you to still be able to deposit money.
- Direct deposit: If you get a checking account, it can be beneficial to sign up for a direct deposit. This way your paychecks or government checks will go straight into the bank with no extra fees and delays. It is also safer than waiting for a check to clear because if something goes wrong you have more money immediately instead of having to wait until it clears through multiple banks as well which could take weeks depending on how much there is in the transaction.
If you do not have a bank account, there are several ways to manage money that may help.
- Take the check to your bank and cash it.
- By using a prepaid card account, you can deposit your checks at an ATM and avoid the hassle of having to mail in physical copies.
- When you want to cash a check, the best option is often at retailers who charge less than stand-alone check cashing services. For example, Walmart charges $4 per check under $1,000 and $8 for checks over 1k representing 0.4% of just 100 dollars.
Check-cashing services are a viable alternative to traditional banking for the unbanked and underbanked who need convenient access to financial services.
As you can see, it isn’t the best idea to cash checks at check cashing services. Although they have their perks and may come in handy every once in a while, there are costs associated with using these types of money establishments so if you’re able to open an account at your local bank or credit union instead that would be better for your financial situation overall as well as safer too.