Banking

Individuals need access to the banking system and credit to be able to save, invest, and build wealth. It is essential for financial independence.

Banks play a crucial role in a community’s economic vitality. They foster stability and growth for families and small businesses alike. In recent years, the banking industry has changed dramatically. Bank branches have consolidated. Banks rely on technology to a much greater extent. Some banks provide services entirely online and have no physical branches.

Physical bank branches remain important for older adults relative to other age groups. Eighty percent of people age 50 and older still conduct business at a bank branch. However, the rise of online banking has resulted in the steady closure of physical bank branches, particularly in rural communities. This, in turn, has created more banking “deserts” where the nearest bank branch is more than ten miles away. Lack of access to essential in-person banking services may especially hinder the economic independence of older adults, people with disabilities, and people with low incomes who may not have reliable access to technology. It may also make banking less safe if it is more difficult to detect fraud or financial exploitation. These trends may increase financial exclusion and isolation as more consumers are left out of the mainstream banking system. Instead, they may turn to costly alternative financial services.

Rural Americans are also more dependent on brick-and-mortar branches, according to the Consumer Financial Protection Bureau. One reason for this may be that they are less likely to have a high-speed internet connection at home, making online banking more challenging (see also High-Speed Internet Services). Rural small businesses also disproportionately rely on physical bank branches.

Other options for expanding access to financial services beyond conventional bank branches include:

• Public banking initiatives: These efforts utilize post offices and similar venues to provide banking services.
• Mobile bank branches: Also known as “banks on wheels,” these vehicles—equipped with teller windows, customer-support stations, and private offices—bring banking services directly to underserved areas.
• Extended hours: Existing branches can offer longer operating hours to accommodate those who face lengthy commutes.
• Live offsite tellers: ATMs can enable customers to interact with tellers remotely.

Banks can counter these trends by offering low-cost basic-banking services. These are sometimes called lifeline accounts. Typically, they have a low initial deposit requirement, no minimum balance requirement, and low fees. Some jurisdictions require banks to offer them. For example, New York mandates that all banking institutions in the state do so.

Fees: Many banks have charged lower fees in recent years. A notable change is that most large banks have stopped charging a nonsufficient funds (NSF) fee when they decline a transaction that would have overdrawn the account. This saves consumers nearly $2 billion in fees each year, according to the CFPB. In addition, many banks have stopped imposing overdraft fees when they allow a transaction that overdraws the account. Nevertheless, in 2023, consumers still paid $5.8 billion in NSF and overdraft fees. Other fees include service fees on checking and savings accounts and charges for using automated teller machines (ATMs). To avoid these ATM fees, many consumers have turned to cash-back transactions. However, this alternative is not without its own costs. The CFPB estimated that cash-back fees charged by three major retailers cost consumers over $90 million annually. Consumers with low incomes and access to fewer bank branches are most likely to incur these fees.

Basic-banking services: Even with the recent reduction in bank fees, the costs of banking services are beyond the reach of some people with low and moderate incomes. In response, several programs have emerged to increase access to affordable banking services for underserved populations who might otherwise be excluded from the banking system. Some states require banks to offer so-called lifeline accounts. Typically, these bank accounts have a low initial deposit requirement, no minimum balance requirement, and low fees. They are therefore accessible to people. Additionally, the BankOn initiative works to connect consumers to safe, affordable bank accounts. It sets national standards for these accounts, including features like low fees and no overdraft charges. As of 2024, 101 BankOn coalitions have formed across the United States. Participating financial institutions offer a checking account or prepaid card that meets certain consumer protection standards.

Electronic banking: Most banking transactions that Americans make are conducted electronically. The overwhelming majority of paychecks and nearly all Social Security benefits are electronically deposited into a bank or credit union account or onto a prepaid debit card. Federal law requires banks to document electronic payment activity, limit consumer liability for unauthorized transactions, and create procedures for error resolution.

According to a survey from the Federal Deposit Insurance Corporation (FDIC), older adults are increasingly using electronic banking as the primary way of managing their finances. In 2023, over half (55 percent) of people age 45-55 primarily used mobile banking to access their bank account, compared with 36 percent in 2019. Forty percent of people age 55-65 did so, compared with 21 percent in 2019. Almost 20 percent of people age 65 plus did so, compared with just 8 percent in 2019.

The Credit Card Accountability Responsibility and Disclosure Act, also known as the Credit CARD Act, created consumer protections for gift cards. (Prepaid cards, also known as general-purpose reloadable cards, are different from gift cards.) Gift cards cannot expire less than five years from the date that funds were first deposited on the card. They must print disclosures related to fees and expiration dates on the gift card. Dormancy, inactivity, and service fees can only be charged when the gift card has not been used for at least one year, and no more than one such fee can be charged per month. Gift card sales have soared in recent years to an estimated $570 billion. Unfortunately, the soaring sales have been accompanied by increased gift card fraud (see also Scams and Fraud).

Account features that prevent financial exploitation: Financial exploitation presents a significant threat to older adults. It can destroy their finances and wreak havoc on their emotional and physical well-being. It increases the likelihood of depression and anxiety and even hastens death. The average victim of exploitation loses $120,000, which is almost equal to the average level of savings for a household age 50 and older.

The vast majority of consumers prefer having accounts with institutions that proactively fight financial exploitation. One way to do so is for financial institutions to implement account features that prevent exploitation before money leaves the account. For example, financial institutions can analyze data to identify at-risk consumers, provide read-only account features that allow caregivers to track movements without giving access to funds, and prevent the sale of inappropriate products to people with dementia.