Pros and Cons of Check Cashing

People without bank accounts are able to cash checks thanks to check-cashing services. People who require cash are charged a fee, sometimes as little as $1 and other times as much as $100.The service can be used by anyone who needs cash right away, but it is primarily intended for the unbanked or underbanked. Unbanked refers to a person who has no bank accounts of any kind. When someone is underbanked, they have some sort of account but still use alternative services, like check cashing.

What causes someone to be unbanked?

 They might not be able to open a bank account because of past overdrafts or unpaid fees, or they might just not want one. They might live in a rural area where there aren’t many opportunities for in-person banking. The service may be used by the underbanked to cash checks more conveniently or to quickly meet a cash-flow emergency. The majority of unbanked and underbanked people are likely poor, which is probably not surprising. Nearly one-fourth of people without a high school diploma and 21% of people with annual incomes under $25,000 are underbanked.

A check cashing service does exactly what its name implies: it enables people to cash their checks without using a bank. Always keep in mind that these services are not banks. They are “storefronts” instead.

How Does Check Cashing Operate?

The system is not challenging. Simply bring your check, ID card, and the check to a location that accepts them, sign the checks back, and you’ll receive cash. You will be given the check’s value less the fee. You might need to fill out a form at some stores.

One of the primary distinctions between using a bank and a check cashing service is the instantaneous availability of cash.

Some banks have a three-day hold on checks that are deposited into accounts. Therefore, if you deposit a check on Monday, it’s possible that you won’t have access to the money until Thursday of that same week. The check cashing service will convert the check into cash if you need the money right away and you can leave the office with it.

Who may require this type of service?

Individuals without adequate banking services: Some people dislike using banks. Some people have a troubled past that includes overdrafts or failing to pay fees, so banks won’t give them an account. A check cashing service is not just a convenience for these people; it is essential.

 People in immediate need of cash: According to the Federal Reserve, 13% of the country’s bank account holders still use check cashing services. According to FISCO, 60% of clients have a bank or credit union account. These people are drawn to check cashing services because of how easy it is to get cash right away. The few days it takes for a check to clear at the bank may be too long for some people to wait. if, as an illustration, the electric or mortgage bill is due.

Those who live in areas without access to traditional financial services It’s possible that there aren’t many banks in poor or rural areas. Online banking is available, but it’s possible that poor or rural areas lack access to computers and the internet. Additionally, some individuals require the flexibility to cash checks at odd hours, which is possible at the numerous check cashing stores established in underbanked or unbanked communities.

Check-cashing Services: Pros and Cons

Life is a balance of giving and taking. The same is true of check cashing services. Depending on the situation and one’s financial situation, one may choose to use a check cashing service. Even though there are fees, having quicker access to your money can be crucial.

This strategy has benefits and drawbacks. It’s a good idea to comprehend both.


One advantage of a check cashing service is that:

The unbanked and underbanked, who might otherwise have nowhere to turn, have access to financial services.

Access to the money right away without having to wait for checks to clear.

There may be more opportunities to cash a check if the service is open later in the day.

The service also may have offices in locales without brick-and-mortar banks.


The fees that check cashing services charge are foremost among the drawbacks because they keep low-income users in a difficult cycle because they have to use some of the meager income they have to visit a service just to cash a check. Among the drawbacks:

Fees: In some locations, cash checking services have a low fee of $1 while in others, the fee is as high as 2 percent of the check amount. These fees reduce one’s capacity to make ends meet or have extra money available. Always be aware of the costs and fees before using a check cashing service.


Many “services” will attempt to upsell customers on expensive payday loans. Given their predatory nature, payday loans should cause a red flag to go up for all consumers. It’s an expensive and risky method of borrowing money. They can cash your check, but don’t let them pressure you into taking out a payday loan.


 While cashing a check may seem like a good idea, walking out of a business with $1,000 in your pocket does carry some risk, particularly when shady characters are aware that those leaving the specific business will have a sizeable sum of money.

No federal protection

There is no FDIC insurance covering your funds at a check cashing service like there is at a bank. Each account ownership category for anyone who opens an account at a bank is insured for up to $250,000 per bank. Accordingly, the government will cover your loss of up to $250,000 in the event that the bank fails. Check cashing businesses serve as one-stop shops without offering ongoing protection.

The Bottom Line

Millions of people can and do use check cashing services, but it’s best not to depend on them in the long run. Using the service can be advantageous once when the need is great. But as a result of the high fees, a difficult to escape debt spiral develops.

Check-cashing services can help you get access to your money if you’ve had trouble opening a conventional account at a bank or credit union. But look into the charges first. Calculate the portion of your money you will ultimately lose by returning it to the cashier.

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