Second-Chance Checking Accounts: What To Know

A second-chance checking account is designed for those whose banking history may prevent them from opening a standard account. Those who apply for this account sometimes have past issues such as an unpaid negative balance or an involuntary account closure. Second-chance accounts sometimes have mandatory fees and fewer perks, but they enable consumers to remain in the banking system and rebuild their banking history.

What is second-chance checking?

If you’ve previously applied for a checking account and were declined, chances are the bank used a consumer reporting agency called ChexSystems to review your banking profile and saw problems such as an unpaid negative balance on a past account that resulted in the bank closing the account. 

Other information that can show up in this report includes suspected bank account fraud. Information on closed checking accounts stay on your ChexSystems record for five years.

A second-chance checking account is for customers who can’t qualify for standard checking accounts. These special accounts may have mandatory fees, more restrictions and fewer conveniences. But they give consumers a chance to stay in the banking system.

After a designated timeframe of handling the second-chance account properly, the customer may qualify for a standard checking account with fewer fees and more conveniences, depending on the financial institution. 

Pros and cons of second-chance checking accounts

A second-chance checking account has several benefits — and drawbacks. Second-chance checking account customers should not expect to get all the services a regular checking account offers.

Pros

• It gives customers who have been denied a bank account access to some conveniences of a checking account, which may include depositing cash, using debit cards and accessing ATMs.
• It helps people avoid using check-cashing stores that charge high fees or buying money orders to pay bills, which is also an additional cost.
• After a set amount of time, the customer may be able to access a standard checking account.
• Having a second-chance checking account at a federally insured bank or credit union is safer than dealing in cash, since stored cash at home can be lost, stolen or destroyed in a natural disaster.

Cons

• Monthly account fees may be mandatory.
• Limits on debit card spending may be imposed.
• Overdraft services might not be offered.
• Other standard checking account privileges may not be available. For example, Wells Fargo’s Clear Access Banking account doesn’t allow check writing.
• Second-chance checking customers may be required to set up direct deposit.

Where to find a second-chance checking account

Second-chance checking accounts can be found at some regional banks, online banks and credit unions, as well as some big, traditional brick-and-mortar banks. Online banks tend to charge lower fees because they don’t typically have branches to maintain. If you prefer branch banking and a more personal experience, check with community and regional banks in your area. 

The table below provides some information about various banks and credit unions that offer second-chance checking accounts.

Features of second chance checking accounts

Second-chance checking accounts may come with certain features, such as:

• Monthly maintenance fees: Many, though not all, second-chance accounts charge monthly maintenance fees and may not provide any means to waive the fees. Based on Bankrate research, these commonly range between $5 and $12, although there could be amounts outside that range.
• Overdrafts may be prohibited: While many regular checking accounts allow customers to overdraw the account and pay a corresponding fee, many second-chance accounts simply deny transactions that would have otherwise brought about a negative balance.
• No check writing: Some, though not all, second-chance accounts don’t provide check-writing privileges.

Nationwide options for second-chance checking

In addition to the widely available accounts listed above from Varo Bank, Chime and Wells Fargo, various other nationwide options are available for second-chance checking accounts. These include:

• Bank of America: The Advantage SafeBalance Banking account from Bank of America requires a $25 minimum opening deposit. A $4.95 monthly maintenance fee is charged that can be waived when certain requirements are met, such as maintaining a minimum daily balance of $500 or more. Overdrafts are not permitted; instead, transactions are declined or returned unpaid when there’s not enough money in the account.
• Chase Bank: Chase’s Secure Banking account requires no minimum opening deposit, and there’s a $4.95 monthly service fee that’s waived when you receive at least $250 in qualifying monthly electronic deposits. Rather than allowing for overdrafts, the bank will decline transactions that would have brought your account to a negative balance.
• U.S. Bank: The Safe Debit Account from U.S. Bank requires a $25 minimum opening deposit, along with a $4.95 monthly maintenance fee. Overdraft fees won’t be charged, but having a negative balance results in your not being able to use your debit card or withdraw funds until you restore a positive balance.

How to choose the right second-chance checking account for you

When comparing second-chance checking accounts at various banks and credit unions, look for features and services that are most important to your daily financial needs.

Features to look for in a second-chance checking account include:

• FDIC-insured
• Low or no monthly service fees
• Low or no minimum balance requirements
• Access to online and mobile banking

Alternatives to second-chance checking accounts

Prepaid debit card

There are ways to pay bills and make purchases without a checking account. A prepaid debit card is one tool. A prepaid debit card looks and works much like a debit card, but unlike a debit card, it’s not tied to a bank account. Money is loaded onto the card which limits the amount a cardholder can spend. When the funds are exhausted, the card can be reloaded with more funds.

Prepaid debit cards help you budget your money and control spending, but they do come with fees, so that’s something to ask about before you choose a card.

Secured credit card

A secured credit card is another alternative to a second-chance checking account. Secured credit cards, provided by banks and credit card issuers, are suited to people with a bad or limited credit history or no credit history. The card is backed by collateral, which is usually a deposit.

Responsible use of a secured credit card is a good way to raise your credit score and control spending. But watch out for fees and high annual percentage rates (APRs). You should always pay your card balance in full each month and on time to avoid paying interest.

Bottom line

A second-chance checking account can be a valuable money management tool if you’ve previously been denied a standard checking account due to a history of overdrafts or other problems. A second-chance account can help you eventually move on to a regular checking account, which comes with more privileges and fewer restrictions.