A banking desert is an area with no bank branches within it or within 10 miles of its center. Economists at the Federal Reserve Bank of New York found 1,214 banking deserts in the U.S., most of which are in sparsely populated areas. Twenty-three percent of banking deserts are in metropolitan statistical areas (MSAs) and the rest are in rural areas. Some MSAs, like New York and Boston, have no banking deserts at all.
Learn more about Banking Desert
Banking deserts are places where people can’t easily go to a bank. There are many reasons why a banking desert might happen. For instance, a banking desert could happen because:
- Closing branches that are not performing well
- Bank Failure
- Decrease in population
- Rising need for online banking services while traditional branch banking is declining.
Many banks closed after the 2008 financial crisis. A total of 6,008 branches out of 95,018 were lost between 2008 and 2016. This led to the emergence of 86 new banking deserts in rural areas during that period. Minorities were disproportionately impacted, with 25% of closures happening in majority-minority census tracts.
Cons of Banking Desert
People living in banking deserts face challenges due to the distance to the nearest bank branch. They may have to travel long distances to deposit, withdraw, or apply for a loan. Alternatively, they may need to use online financial services, which requires digital literacy.
Not being able to easily access a bank branch can hinder the development of good financial habits. Limited exposure to banking can lead to lower financial knowledge, making it harder to grasp essential concepts like budgeting, saving, and establishing credit.
Conclusion
Areas without nearby bank branches can make it hard to do basic financial tasks, like paying bills or depositing checks, but digital banks can help. Digital banking aims to fill that gap for people who live in those areas. Online banks may have lower fees and higher interest rates on deposit accounts. Online bank accounts are also easy to open, which can help ease the impact of living in a banking desert.