What Is a Second-Chance Checking Account?

Checking and savings accounts are important tools for money management, but they may be out of reach if you have a flawed banking history.

Banks and credit unions often check your banking record using ChexSystems or another consumer reporting agency when you apply for deposit accounts. If the financial institution finds any negative information, such as frequent overdrafts or fraudulent activities, it may deny your application.

However, some banks and credit unions offer second-chance checking accounts, which are products designed for people in this situation. Here’s a look at what second-chance checking accounts are and where to find them.

What is second-chance checking?

A second-chance checking account is designed for people who can’t open a standard deposit account because of their banking history. These customers may have struggled with issues such as unpaid bank fees, frequent overdrafts and involuntary account closures.

Financial institutions that offer second-chance checking are willing to look past these missteps and provide access to checking and other basic money management tools. You can find these accounts at many major banks and other financial institutions, including credit unions, community banks and online banks.

A second-chance account may charge maintenance fees, require a minimum balance and impose certain restrictions. Some accounts won’t have these requirements at all.

Your bank or credit union may share details about your second-chance account with reporting agencies such as ChexSystems, Early Warning Services and TeleCheck. Responsible account use may help you eventually upgrade to a more convenient account with fewer costs.

What are pros and cons of second-chance checking?

If you have a blemished banking past, a second-chance checking account can offer tools to manage your money and rebuild your financial history. These accounts often come with fees and limitations, but they can also provide a fresh start: If you keep your second-chance account in good standing, you may be able to graduate to a standard account.

Before opening one of these accounts, consider these pros and cons:

Pros

• You can access many of the conveniences of a checking account despite being a high-risk customer.
• You won’t have to use money orders to pay bills or expensive cash-checking services to get the money you need.
• You may be able to transition to a standard account after keeping a second-chance account in good standing over time.
• You can use a second-chance account at a federally insured institution more safely than spending cash.

Cons

• Accounts may have monthly fees that can’t be waived.
• Some second-chance accounts impose debit card restrictions.
• Accounts typically do not come with overdraft protection.
• Some standard features, such as check writing, may not be available.
• Customers may need to set up direct deposit to open an account or take a course in money management to upgrade accounts.

Where can you find second-chance checking accounts?

You can open a second-chance checking account at a bank, credit union or online financial institution. We’ve selected a handful of choices available either nationally or regionally.

How to choose a second-chance checking account

As you weigh your options, keep in mind that the best second-chance checking accounts have these features in common:

• No or low monthly fees
• No or low minimum balance requirements
• No or low cost for services such as online bill pay, debit card access and check-writing privileges
• Few limits, such as monthly or daily transaction amounts

Your options will vary with every financial institution. If you’re considering a specific bank or credit union, first check to make sure it serves your area. Also, a credit union often expects you to meet eligibility requirements to join as a member before opening an account.

Once you’ve narrowed down your choices, look at each institution’s offerings and its fee schedule. Identify the services and features that are most important to you in a second-chance checking account, and read all of the fine print to avoid extra fees or surprise requirements.

How to open a second-chance checking account

Here are the general steps you will take to open a second-chance bank account:

• Compare bank accounts. Start by researching second-chance checking accounts at multiple banks, credit unions and online institutions. Look at account fees, minimum opening deposits, balance requirements and restrictions. Make sure the account you select offers the features you need, such as check writing or in-person branches.
• Apply for the account. Depending on the institution, you may be able to apply online or in person. The bank will need personal details, such as your name, address and birthdate, and likely a photo ID.
• Fund the account. Many second-chance accounts don’t require an opening deposit to get started. But you can fund the account by setting up direct deposit or by depositing a check through the bank’s mobile app.

Alternatives to second-chance checking accounts

If a second-chance checking account isn’t a good fit, then you can find other ways to manage your money. Here are some alternatives to check out:

• Prepaid debit cards. A prepaid debit card allows you to make purchases and withdraw cash from ATMs, but it’s not linked to a checking or savings account. You may load money onto the card when you purchase it from a retailer or bank. These cards can help you avoid overdrafts and control spending, but they may come with fees and won’t help you rebuild your banking history.
• Secured credit cards. A secured credit card requires a one-time security deposit to open the account. The deposit protects the card issuer if you don’t pay the bill. If you fall behind on payments, the issuer can take the deposit and pay off your balance. As long as the card issuer reports your account to the credit bureaus, this type of card can help you build a credit history.
• Money orders. You can also buy money orders to pay your bills. Fees for money orders vary depending on the dollar amount and the issuer but can add up over time. Also, the limit for a single money order in the U.S. is $1,000.