The Financial Health Network has conducted an investigation into the amounts that prepaid cardholders spend each month to conduct essential financial transactions, and compared that to the amounts that they would spend if they remained underbanked or used checking accounts for the majority of their transactions instead. Our analysis indicates that there is no one financial strategy – whether based on using a traditional checking account, check cashing services or a prepaid card – that is right for all people. Each of these services can be used relatively cost effectively, if the individual has access to low cost providers. Instead, consumers of financial services must evaluate their own cash flow needs, behaviors and preferences in order to choose the combination of products and services that is the best fit for them in terms of both price and functionality. It is clear that consumers are making trade-offs regarding the relative merits of different options – often by choosing a combination of services offered by different providers – in order to balance cost concerns with the other features that they need, such as convenience, accessibility, liquidity, simplicity and certainty.

This analysis also indicates several ways that the financial products and services available to underbanked consumers today could be improved. These include broadening the availability and use of direct deposit; expanding the functionality of both prepaid cards and checking accounts; increasing the transparency and certainty around fees to be paid; and guiding consumers to the best choice for their particular needs. Additional functionality to facilitate budgeting is crucial. Finally, adding credit-building and savings features to the transactional products studied would strengthen their connection to long-term financial prosperity and dramatically increase their utility to the individuals who use them.