What are check-cashing services?

Getting paid is always worth celebrating, but where do you go to turn that celebration into actual cash? About 4.5 percent of U.S. adults have to find an alternative to banks or credit unions for doing so. This small portion of the population is often known as the unbanked, which means they do not have a traditional checking or savings account. Instead, they have to explore other ways to cash their checks and turn written amounts into real dollars.

What is a check-cashing service?

While you may not be familiar with a check-cashing service, you’ve likely passed by one of these places that will happily handle your checking needs. They often have signs that advertise their check-cashing ability, along with payday loans, wire transfers, money orders and other financial transactions.

According to the trade association that represents many of these places, Financial Service Centers of America (FISCA), there are more than 13,000 locations across the country. A lot of people put a lot of money through them, too. FISCA’s data indicates that they serve more than 30 million customers each year, who are primarily of low-to-moderate income backgrounds.

How check-cashing services work

Check-cashing services offer instant access to cash. While depositing checks in a traditional bank account often includes a processing time where the funds may be available the following business day or a few days later, you can take your check into one of these service centers, show them your government ID and walk out with the money a few minutes later.

Fee examples from some popular check-cashing options

The convenience of speed often comes with a cost, though. Check-cashing services charge a fee for each transaction. That fee will vary depending on where you cash your check and what type of check you hand over. Consider some of these check-cashing costs for cashing a paycheck.

• Moneytree — 2.99 percent of the check amount, plus a $2.49 fee if it’s more than $20
• Amscot — Tiered system for local payroll checks, starting at $3 and ranging to $14.95 for a check just under $1,000; 2 percent of the amount for anything larger
• PLS — 1 percent of the check amount + $1 for in-state payroll checks and government benefit checks up to $1,000; fees for other checks vary

While many locations display their fees next to the cashier window, tracking down the fees you’ll pay for cashing a check before actually going to the retail location can be tough. Some of the biggest names in the business — ACE Cash Express and United Check Cashing, for example — do not readily list the fees for their services online.

To eliminate confusion, you could skip visiting a standard check-cashing outlet and take your check to a retailer that offers check cashing. Here are a few popular examples.

Pros and cons of check-cashing services

Michael Sullivan, a personal finance consultant at Take Charge America, says that the biggest downside to check-cashing services is the cost.

“Some outlets will charge 10 percent or more of the value of certain checks to cash them,” Sullivan says. “If consumers are paying 10 percent of their net earnings just to get paid, that can amount to a huge decrease in their standard of living.”

Sullivan also points out that you might walk into a location with the simple goal of cashing your check, but you can be lured in to signing up for more services. “Where the law allows, many cash-checking stores are loan outlets, providing more temptation to financially distressed consumers,” he says.

Despite those drawbacks, the reality is that plenty of people have to use them because they cannot open a bank account.

“The upside of check-cashing stores is that they provide a mechanism for many consumers to work and live,” Sullivan says. “Consumers can be unbanked for many reasons, from financial crime records to undocumented status. Whatever the reason, it is still often necessary for these people to cash checks, whether to pay bills or to cash tax refund and salary checks. Some seniors need to cash Social Security checks. Without commercial check cashers these consumers would have few options.”

Bottom line

If you have faced challenges opening a traditional account at a bank or credit union, check-cashing services can help you access your money. Investigate the fees first, though. Compare different check-cashing options to find the most affordable one.

Still, there are other options if you’ve had issues in the past with banks. You could try opening a second-chance checking account, which is designed for those who’ve been rejected for a traditional bank account. Or, if you’re worried about bank fees, also consider a fee-free checking account.

— David McMillin wrote a previous version of this story.