What Is a Lifeline Account?

A lifeline account refers to a checking or saving account with low fees or no monthly or annual fees and no minimum balance and deposit requirements. Lifeline accounts are targeted to lower-income earning customers or first-time account holders.

Key Takeaways

  • A lifeline account is usually a basic checking or savings account designed for underbanked customers.
  • A lifeline account's benefits are often low balance requirements, low to no monthly fees, no minimum deposit requirements, and other cost-cutting features.
  • In some states, like New York, banks are required by law to provide some affordable banking options.
  • Some digital banks offer lifeline account-like options for customers, but drawbacks include a lack of paper checks and a brick-and-mortar bank.

How Lifeline Accounts Work

A basic or lifeline bank account goal is to bring all members, especially low-income or underbanked, into the economy by encouraging saving and long-term investing. Low-income citizens are often ignored in the economy because they don't have a lot of disposable income. Still, by fostering their long-term financial health, they can become more significant contributors down the road.

Most states have laws requiring banks to provide some affordable banking services to their customers. In New York, for example, a state law was enacted in 1994 that required commercial banks, savings banks, and credit unions to offer "lifeline accounts" to all customers in the form of basic banking accounts.

Lifeline accounts are not always called lifeline accounts but are sometimes referred to as basic checking or saving accounts. The idea behind any of these accounts is to bring in first-time customers or support low-income customers. These types of checking and savings accounts don't incur fees that nickel and dime the account holder.  

Basic banking accounts with low fees or no fees plus no minimum deposit requirement can act as lifelines to those who need them.

Examples of Lifeline Accounts

 One example is BankFinancial, headquartered in Illinois, which offers its customers a lifeline checking account. The benefits include free overdraft protection, no returned item fees, free ATM transactions at any of its branches, and no minimum balance requirement. However, customers need to have an initial deposit of $50 plus pay a $5 monthly service fee.

Bank of America offers what it calls a version of a lifeline account aimed at students called an Advantaged SafeBalance Banking account. This account has no overdraft fees, provides a debit card instead of checks, and offers a predictable monthly maintenance fee.

MyCreditUnion.gov provides a list of affordable credit unions that offer affordable banking options similar to "lifeline account" for lower-income customers.

Special Considerations

The rise in digital banks has provided some affordable checking and savings account options with limited fees. Still, to use these accounts, you have to have reliable internet or a mobile phone. Digital banks may offer more perks, such as lower fees, no deposit or balance requirement, and transactions can be done via your phone. However, in the case of a lower-income customer seeking a lifeline account, the perks may not be enough. For example, digital-only banks don't provide brick-and-mortar services, and in some cases, do not provide actual paper checks.

If you cannot find a lifeline account, there are low-income, low-cost credit unions and banks offering affordable basic accounts. A good place to start your search is your local BankOn, a national coalition of government agencies, financial institutions, and community organizations partnering to help underbanked and unbanked communities.