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What Is a Second Chance Checking Account?
If you’ve had some financial issues in the past, you may need to consider second-chance banking. A second chance checking account is essentially like a conventional checking account, but there are fewer features, more restrictions, and mandatory fees. However, these accounts provide an opportunity for people with issues with traditional checking accounts.
Although most banks don’t run a credit check when you apply to open an account, they do typically consult your ChexSystems file.
What is ChexSystem, And How Does It Work?
ChexSystems is a reporting agency that collects information about any banking issues or problems you’ve had with deposit accounts, including savings and checking accounts.
This agency creates a report of your banking activity, so if you’ve had accounts repeatedly overdrawn or closed due to irresponsible activity, it would be on your ChexSystems report. When you want to open a new account, your new bank will likely check your report and use the information to determine whether you can be approved for a new account.
This is where a second chance account comes into play. You can use the account to hold funds, pay online bills, and even use a debit card, even if you have blemishes on your ChexSystems report. If you demonstrate that you can responsibly manage your account, the bank may transition you to a standard bank account, increasing the account feature set and reducing your fees.
Pros and Cons of Second Chance Checking Accounts
Of course, no financial product is perfect, and there are both pros and cons associated with second chance checking accounts. It is important to be aware of the positive and potential negative before deciding if you should open an account.
Direct Deposit Requirement
Most banking institutions are covered by FDIC (Federal Deposit Insurance Corporation,) and even if you have a second chance account you can still enjoy this protection.
If your bank is covered by FDIC, you are covered for up to $250,000 should the institution fail.
These days you need a bank account to manage day to day transactions. From paying bills to purchasing items, many establishments discourage using cash, so you’ll need some form of bank account.
Even if you have a high risk banking history, a second chance account will provide you with accessibility, so you can deposit cash, pay bills, use an ATM and make purchases with your debit card.
Many second chance checking accounts feature overdraft protection. This makes it impossible to overspend and you can avoid those hefty overdraft penalties and fees.
Lower Requirement Minimums: Typically, second chance accounts have lower minimum balance requirements, which provides greater flexibility.
Since you are a higher risk customer, banks need to cover this risk by charging higher fees. If you have a second chance account, you can expect the fee structure to be higher compared to regular checking accounts.
This means that you may need to pay a monthly maintenance charge and other account fees may also be increased.
Some second chance accounts have very limited functionality, so features such as check writing may not be possible.
If you’re used to a standard checking account, you may find that the perks and privileges of a second chance account are limited.
Some banks require that you have a direct deposit to fund the account, which may be a problem for those who have unreliable income streams.
Second Chance Banking Minimum Requirements
Since they are quite flexible compared to conventional checking accounts, you should find that there are little or no minimum requirements to open a second chance checking account. In most cases, there may be no minimum initial deposit, but some banks may require that you have a salary direct deposited into the account.
In most cases, the requirements for opening a second chance checking account are similar to a standard checking account. You’ll need:
- To be 18 or older
- Have a U.S postal address
- Demonstrate citizenship or residency
As with all bank accounts, you will also need to show proof of your ID, in the form of a valid driver’s license, passport or state issued photo ID.
How to Choose a Second Chance Checking Account
Although it may appear daunting, there are actually numerous second chance checking accounts in the marketplace. So, it is a good idea to compare your options to ensure that you choose the best account for your circumstances. Some factors to consider include:
- Service Fees: Although a service fee is typical with a second chance checking account, some banks charge lower or no monthly service fees. If you want to streamline your costs, look for an account with as low a monthly service fee as possible.
- Minimum Balance Requirements: Ideally, you should not need to tie up funds in your checking account, so your second chance banking account should have a low or no minimum balance requirements.
- Feature Set: The features available on different second chance checking accounts can vary greatly, so you’ll need to think about what features are essential for you. This could include having a debit card, writing checks and access to an extensive ATM network.
- Accessibility: It is also a good idea to choose an account that provides access to mobile and online banking. This will enable you to manage your account on the go. So, you’ll be able to make transfers and pay bills without needing to wait for regular business hours.
National Second Chance Checking Accounts
Now, we’ve covered the basics of second chance checking accounts, we’ll look at some of the available offerings at national banks.
Chime is an online only bank that aims to offer attractive banking packages even if you don’t have great credit. Although the Chime checking account is not exclusively advertised as a second chance account, you can qualify if you’ve had issues in the past since Chime does not use ChexSystems.
Chime doesn’t charge a long list of fees, so you won’t need to worry about monthly account maintenance fees or overdraft fees. The only charge you’re likely to encounter is an out of network ATM fee, but since Chime has over 60,000 ATMs in its network, this should not be an issue for most people.
The Chime account also offers an overdraft program. If you have $200 or more in direct deposits each month, you can be eligible for SpotMe. This is a free program that starts with a $20 overdraft limit and it increases to $200, if you demonstrate that you can responsibly handle the overdraft.
Wells Fargo Clear Access
Wells Fargo is a well established bank, but you can still access a second chance checking account via the large branch network or online. This is a great option for those who are wary of online accounts and want the reassurance of being able to go into a branch for queries and transactions.
The account does not permit overdrafts. If you make a purchase that would cause your account to go overdrawn, it will be declined. While this has the potential for embarrassment when you’re shopping, if you’ve had issues with overspending in the past, this could be a good feature for you.
The account has a $5 monthly fee, which is waived if you’re aged 24 or under.
Similar to Chime, Varo is a mobile-only bank that offers a second-chance checking account with no hidden fees or monthly charges. Varo does not require a credit check or use ChexSystems to assess applications, so you can enjoy some of the benefits of a traditional checking account even if you’ve had past issues.
The account has no overdraft or monthly fees or minimum balance requirements. Although the account does not offer paper checks, you can use the app to make payments. The Varo account comes with a debit card and the Varo ATM network includes 55,000+ machines via Allpoint.
You can also link your new Varo checking account to a Varo savings account. This not only offers an impressive rate, but you can opt for round up. This “rounds up” qualifying debit card purchases, transferring these small amounts into your savings account to help you towards your savings goals.
Lending Club offers its Essential checking account to those with a less than perfect banking history. The account is designed to help you to manage your money better using the account technology, while enjoying limited fees. It also offers some of the highest rates of savings accounts.
This account is offered to those who fail to qualify for the Lending Club Rewards Checking. The account has a $9 monthly fee and requires an opening deposit of $10. You must also enroll in online banking. You’ll receive a debit card with the account that has a daily limit to help you to keep your spending under control.
Chase Secure Banking
Chase’s Secure Banking account is a basic checking option that does not require any credit or ChexSystems check. The account does have a $4.95 monthly fee, but it provides a solid option for those who want the flexibility of managing their account online or in branch.
Secure Banking does not have a minimum opening balance requirement and there are no other account requirements. You can access a network of over 16,000 ATMs and visit over 4,700 Chase branches throughout the U.S.
There are also promotions periodically, where you can earn a welcome bonus with qualifying transactions.
Wells Fargo Opportunity Checking
Wells Fargo also offers the Opportunity Checking account. This is a more feature packed account that is available in all 50 states. The account offers free ATM transactions via a network of 13,000 plus machines. There is a minimum $25 deposit required to open the account and the account carries a $10 monthly maintenance fee. However, this can be waived if you maintain at least a $1,5000 balance, receive $500+ in direct deposits per month or make 10 debit card purchases each month.
One of the great features of this account is that there is an overdraft rewind feature. This allows you to go overdrawn and make a deposit on the same day to rectify it, and you’ll avoid an overdraft fee. However, should you go overdrawn, the fee is a hefty $35 and other fees such as returned item fees and overdraft transfer fees are also a little on the high side.
Second Chance Checking Tips
If you’re considering a second chance account or you’ve just opened one, some tips can help you to make the most of the account and work towards improving your financial situation.
- Monitor Your Balance: Many second chance accounts have a compatible app which allows you to set low balance reminders. This will provide an alert if your balance drops below a specified amount. By monitoring your account and ensuring your balance stays in the black, you can avoid costly fees or failing to meet any minimum balance requirements.
- Automate Your Bills: If you have the flexibility to do this, set up auto bill payments on your second chance account. This will not only allow you to not miss any payments, but you can demonstrate that you can use your account responsibly. Of course, you will still need to monitor the account to ensure that you are paying the correct amount and your bills are going out of the account correctly.
- Look at Overdraft Protection: Some accounts allow you to link your checking account to automatically transfer funds if you are going overdrawn. Just watch out for any associated fees with this feature.
- Ask for an Upgrade: Many banks will automatically assess your account activity to see if you are eligible for an upgrade to a standard checking account after six to 12 months. If this has not happened, it is well worth asking if your account can be upgraded.
Some banks do offer a savings account along with a second chance checking account. For example, Chime and Varo have savings accounts along with checking accounts.
A second chance checking account will demonstrate responsible management on your ChexSystems, but it will not help you to improve your credit score.
Most banks will consider transitioning your second chance checking account to a regular account within six to 12 months.
The main restrictions are typically no check writing and limited overdraft options.
Yes, Chase has its Secure Banking account, which is a second chance checking account.
Yes, Bank of America has its Safe Balance checking account, which is a second chance account.
Wells Fargo has two second chance checking accounts, Clear Access and Opportunity. Both of these accounts are second chance accounts, but the features and maintenance charges differ.