What Is a Check Cashing Service?
These services are similar to a bank, with some important differences
Check cashing services can offer services similar to your local bank, but there are some important differences to note. They may be most useful for those without bank accounts. Here are the basics of check cashing services, their pros and cons, what they cost, when you should use one—and when you might want to stay away from them.
Basics of Check Cashing Services
According to the Federal Reserve, 6% of adults in the United States are “unbanked,” meaning they do not have a checking, savings, or money market account. In fact, the Fed found that during 2018, two-fifths of unbanked adults used some form of alternative financial service such as a pawn shop loan, auto title loan, cash checking service, and more.
According to the Fed, 16% of adults were "underbanked" in 2018—meaning they have a bank account, but also used an alternative financial service product.
This is where check cashing services come in. These services allow consumers to cash checks without a bank account, giving people who may not be able to open a bank account easier access to cash. Not being able to have a bank account can occur for many reasons, including having a negative report with financial reporting agency ChexSystems.
Check cashing services are usually open 24 hours a day. They differ from banks in that they offer fewer services, usually just check cashing, money orders, electronic bill payments, ATM access services, and payday loans. They also charge fees for their services, while traditional banks or credit unions usually won’t charge account holders for services such as check cashing or ATM access.
Check cashing services are represented by Financial Service Centers of America (FiSCA), a national trade association. According to FiSCA, there are approximately 13,000 financial service centers in the United States (also known as non-bank financial institutions or NBFIs). These centers conduct over 350 million transactions a year in various products to the tune of $106 billion. Check cashing services are part of the growing non-bank financial institution sector in the financial world.
Pros and Cons of These Services
Provide financial services to those who may not otherwise have access
Allow the money to become available almost immediately, unlike cashing a check at a bank
Can help in case of an emergency
Often charge extremely high fees
Can perpetuate the cycle of poverty
Do not build users’ credit history
Can leave consumers stuck in a cycle of using non-traditional financial services
While check cashing services may not have the best reputation, they provide customers with the ability to cash a check and secure a loan when they may not be able to otherwise.
Additionally, for people who may be living paycheck-to-paycheck, check cashing services can be helpful in that they allow the money to become available almost immediately. This also comes in handy in a financial emergency, because it can sometimes take at least one to two business days for a check to clear with your bank.
A major drawback of using a check cashing service is that it does not build your credit history. For those struggling financially and who already find themselves underbanked, this can pose major problems down the road. For example, without a credit history, they may never be able to obtain a real bank account, a traditional loan, or a line of credit and instead may be stuck in a cycle of using nontraditional financial services—and paying high fees—indefinitely.
Check cashing services often charge extremely high fees, which can siphon off the funds a consumer might otherwise need to spend elsewhere (on rent, food, transportation). This perpetuates the cycle of poverty.
Check Cashing Services’ Charges
Typically, check cashing services charge a percentage of the value of the check, though this can vary. So be sure to read the fine print before you sign on the dotted line.
It’s likely a check cashing service will tack on a fee that will reduce the amount of cash you are given in return.
For example, Walmart charges $4 to cash checks up to $1,000 and $8 for checks over $1,000. While that may not seem like a lot—just .4% or .8% of your total check—other check cashing service spots may charge more. Amscot Check Cashing charges up to 2.9% of the value of government checks, 2.5% of tax refund checks, and up to 4.5% of other payroll and handwritten checks.
When Should You Use One?
It may make sense for you to use a check cashing service if you are unable to open a checking account due to past financial problems but are in the process of rebuilding your credit. You may also use one if it’s outside your bank’s regular business hours and you need cash immediately. But this should only be a temporary measure. Remember, an emergency fund can help mitigate the need for these costly services.
Generally speaking, you shouldn’t use a check cashing service as a regular means of accessing cash. If you find yourself unable to open a checking account, savings account, or money market account, or obtain a loan, it’s time to take stock of your financial situation and start building or repairing your credit score. Using check cashing or alternative financial services should only be a stop-gap measure until you find yourself on better financial footing.
Federal Reserve Bank. "Report on the Economic Well-Being of U.S. Households in 2018 - May 2019." Accessed Feb. 13, 2020.
Financial Service Centers of America. "FiSCA History." Accessed Feb. 13, 2020.