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Check cashing services provide a way to access your money without a bank account. These services allow you to cash your paychecks and other types of checks for a fee.
They are part of the financial services system for millions of Americans who have no or no bank account. Individuals who cannot get a traditional bank account or who need quick, convenient cash can use check cashing services to access the money in their paychecks.
However, check cashing services can have some high costs and potential disadvantages. Before choosing a check cashing service, it is important to understand your options.
What are check cashing services?
Check cashing services are not banks. They are financial services providers that offer a variety of simple transactions and consumer finance products, such as check cashing, money orders, electronic bill payment, and small loans. Some of these companies also offer payday loans or payday advances.
According to the Financial Services Centers of America (FiSCA), the industrial and trading group that represents these companies, there are approximately 13,000 financial service centers in the US that provide financial services valued at an estimated $ 106 billion each to approximately 30 million customers Year offer.
In addition to stand-alone check cashing companies, some retailers like Walmart also offer check cashing services.
How do check cashing services work?
If you have a paycheck or a state check, e.g. For example, a social security check, check cashing services verify your identity, cash your check, and dispense the money immediately, minus a fee. Instead of depositing the check into a bank or credit union account, step out of the storefront to cash checks with instant cash. Some services also offer prepaid cards.
When you deposit a check at the bank, it may take a few business days for the check to clear. The availability of funds for checks depends on the method of deposit. When you find yourself in a tough financial situation, you may want to access your cash faster. Check cashing services provide instant, same-day cash without waiting for the check to be approved by the banking system.
Note that check cashing services charge check processing fees and must disclose these fees up front. Fees vary by company, state, check type, and check amount. For example, Amscot, a Florida-based financial services company, charges 2.9% for cashing government checks for $ 1,500, 2% for local computer-generated paychecks over $ 1,000, 4.5% for paychecks and handwritten checks, and 9.9% for personal checks Checks and Money Orders.
It is important to understand the fees before using a check cashing service. For example, if a check cashing service charges a 2% fee to cash your $ 1,500 paycheck, that’s $ 30, so you have to be taken home with a salary of $ 1,470. If you cash 26 paychecks over a year, the fees add up to $ 780. You may be able to save on these fees by opening a checking account instead and depositing your paychecks there.
As a non-banking financial services company, check cashing services are typically useful for some types of customers:
- People who do not have a bank account. If you don’t want to open a bank account or if you have a negative history in yours ChexSystems File that is preventing you from opening a bank account, check cashing services can be a form of alternative financial services.
- People who need cash right away. Not everyone who uses check cashing services doesn’t have a bank account. FiSCA says 60% of customers have a bank or credit union account, but choose to cash checks for convenience, flexibility, or other reasons.
- People who need convenient financial services. Some people live in neighborhoods that don’t have brick and mortar bank branches, and others need the convenience of cashing a check outside of regular banking hours. Many check cashing services are located in neighborhoods with poor bank accounts and open late into the night. Some are open 24/7.
Advantages and Disadvantages of Check Cashing Services
There are advantages and disadvantages to using check cashing services:
- Instant access to cash without waiting for checks to be cashed
- Customer service times and locations can be more convenient than a bank
- Access to financial services for people without bank details, with insufficient bank details and people who may not want to open a bank account
- Fees can be extremely high
- Carrying cash can be risky
- Some check cashing services may be trying to sell risky, high-yield payday loans
- No insurance for your money
What are the alternatives to cashing a check?
Check cashing services provide a service to millions of consumers. However, operating outside of the banking system can also result in consumers paying additional costs and exposure to additional risks and vulnerabilities. People who are already living from paycheck to paycheck and lacking significant savings or disposable income may not be able to afford hundreds of dollars in fees per year.
Here are some options to consider if you have or are interested in having a bank account:
- Second chance checking accounts. If you have had a bad bank account experience in the past, or even been declined to open a bank account due to a negative history, there are options. Some banks offer second chance checking accounts to help people start over and get back into the financial system.
- Mobile check deposit. More and more banks and credit unions are offering mobile check deposit tools as part of their online banking services. If you don’t have time to go to the bank or your bank branch isn’t open at appropriate hours, there are several ways to deposit your paycheck.
- Direct deposit. If you have a checking account, you can likely sign up for a direct deposit to send your paychecks, tax refund checks, or other government checks straight to your bank account with no additional fees or delays. This is a safe and convenient option that will allow you to credit your account faster than waiting for a check to be cleared.
If you don’t have a bank account, you might have the following options:
- Cash the check at the issuing bank
- Deposit your check into a prepaid card account at an ATM
- Cash the check at a retailer. Retailers can charge lower fees for checks compared to stand-alone check cashing services. For example, Walmart charges $ 4 for checks under $ 1,000 and $ 8 for checks over $ 1,000. This equates to a mere 0.4% charge for a check for $ 1,000.
Not everyone can get a bank account or wants to use the traditional banking system. Check cashing services can provide legitimate assistance to those who do not have a bank account or bank account details and those who need convenient alternatives to banks or credit unions.
However, be aware of the costs and potential risks and disadvantages of using check cashing services. If you can open a bank account, it is likely better to leave your checks with an FDIC-insured bank or NCUA-insured credit union.