Second chance checking accounts: How they work and how to find one

Just as lenders consider your credit history when you apply for new credit, banks look at your banking history when you want to open a new account.

And just as negative information in your credit report can make it difficult to get new credit, negative banking information may give you trouble opening new bank accounts. If you’ve been turned down for a new bank account, a second chance checking account may be an option for you.

Second chance checking accounts can help you build positive banking history, but there’s a trade-off. They often have higher fees and restrictions than traditional accounts.

Let’s look at how second chance checking accounts work and what you should know if you’re thinking of applying for one.

• What is a second chance checking account?
• How to find a second chance checking account
• What are the pros and cons of second chance checking accounts?
• What are some alternatives to a second chance checking account?
• Next steps: Tips for healthier banking

What is a second chance checking account?

When you apply for a new checking account, the financial institution may check your banking history with a consumer reporting agency like ChexSystems. Past accounts closed by a financial institution, payments made with insufficient funds, unpaid bank fees and other negative information can appear in consumer reports — and banks may refuse people with negative banking history.

Second chance checking accounts can provide a banking alternative for people who can’t get a traditional account because of negative banking history. Second chance checking accounts generally allow you to make payments and deposits like a traditional account. Using one wisely could help you build a better banking history.

But second chance checking accounts generally come with some limitations and fees.

How to find a second chance checking account

Not all financial institutions offer second chance checking accounts. But if you’ve been turned down for a traditional account it’s probably worth asking the financial institution if it has a second chance alternative.

You can also visit a financial institution’s website to see if it offers a second chance checking account and find out what terms and conditions apply. Just as with any financial product, it pays to comparison shop for a second chance checking account. Here are some points to consider.

• Monthly fees — Second chance accounts often come with monthly maintenance fees.
• Overdrafts — Second chance accounts may prohibit overdrafts, meaning if you make a payment without sufficient funds in the account, the bank won’t cover the payment. Or, it may charge very high overdraft fees.
• Savings account requirement — Banks may require you to open and maintain a savings account with them for a few months before you’ll be allowed to open a second chance checking account.
• Minimum opening deposit — Second chance checking accounts may require you to deposit a minimum amount to open the account. A minimum opening deposit of $25 is common, but it’s possible a financial institution could require more. Check to be sure it’s an amount you’re comfortable with.
• Other requirements — From requiring you to attend a free financial management class to placing a dollar limit on daily withdrawals, financial institutions can place other restrictions on second chance accounts.
• Other fees — Watch out for other fees. Financial institutions can charge fees to send you a paper statement, if your account goes dormant, if you close your account before a certain number of days, and for other reasons.

Before you sign up for an account with one of these banks, do your research and compare their offerings. You’ll also want to find out when and if you can upgrade to a regular checking account after a set period of keeping your second chance account in good standing. 

What are the pros and cons of second chance checking accounts?

Second chance checking accounts have certain advantages for people with less-than-perfect (or little) banking history. Along with building a positive banking history, you can safeguard your money with an FDIC-insured financial institution, which protects deposits of up to $250,000. This is a much better alternative than just keeping money in your wallet or a lockbox.

Typically, you can also access online banking features, like real-time alerts for every transaction and budgeting tools that could help you better manage your money. Plus, you get the benefit of establishing a banking relationship with a financial institution, which might be helpful down the road if you want to apply for a mortgage or car loan.

But second chance checking accounts typically don’t come with some other benefits you’d get with a standard checking account.

For example, second chance checking accounts may feature overdraft restrictions, meaning you can only spend what’s in your account. In some cases, you may have to pay additional fees if you do have an overdraft. Your bank may not provide paper checks with a second chance checking account, and you may have to pay a monthly service fee to keep the account open.

What are some alternatives to a second chance checking account?

If you can’t get approved for a second chance checking account for some reason, or if this type of account isn’t the right fit for you, you might have other options.

You could get a prepaid debit card. Prepaid cards allow you to load a specific amount of money onto a card and use those funds to make purchases. You can buy these cards at major supermarkets or retailers or online. Think of it as cash, but in card form.

A secured credit card is another alternative. Secured credit cards give consumers who can’t get approved for a traditional credit card the opportunity to access credit. With a secured card, you typically provide a cash security deposit that’s equal to the credit limit on the card. For example, a $500 deposit gets you a $500 credit limit. One of the major drawbacks with a secured card is that most, if not all, credit card issuers require you to have a bank account for your security deposit. If you already have a savings account, a secured card may be an option for you.

Next steps: Tips for healthier banking

A second chance checking account gives you the opportunity to put bad banking history behind you. Here are some additional steps you can take toward healthier banking.

1. Automate keeping tabs on your balance

Online banking features like low balance reminders can alert you when your balance is low. Check your bank account regularly to make sure there aren’t any unauthorized charges and contact your bank if you see something that doesn’t look correct. Monitoring your account could also help you stay ahead of any minimum balance requirements your bank may have.

2. Automate bill payments

If you have the financial flexibility to do so, set up automatic bill payments to help ensure you never miss a payment. But remember that automating payments isn’t “set it and forget it.” You’ll need to monitor your bills to ensure you’re paying the correct amount every month for products and services you actually purchased.

3. Consider overdraft protection

Overdraft protection allows you to link your checking account to another account, such as a savings account. Your bank then automatically transfers money between accounts if there aren’t enough funds in your checking account to cover your charges. Be aware, though, that some financial institutions may charge an overdraft transfer fee for moving money between your linked accounts.

You can also pull your ChexSystems report to see what’s on your record and make sure it’s accurate. The company allows you to pull one free report every year, so use this to identify items that you can resolve right away — like paying old fees — and help improve your banking history. Taking this extra step could mean you might not need a second chance checking account after all.