To be "underbanked" means having a bank account but still relying heavily on alternative financial services outside traditional banking, like check-cashing services, payday loans, money orders, or pawn shops. Underbanked individuals or households typically lack access to convenient, affordable, or full banking services such as credit cards or traditional loans, which leads them to use these non-traditional, often more costly, financial options to manage their finances and fund purchases.

This situation often occurs due to barriers like minimum deposit requirements, fees, limited credit access, location, language, or discomfort with mainstream banking systems. Underbanked people may have accounts but do not rely exclusively on them and may withdraw cash frequently or face overdrafts and other fees. They are distinct from the "unbanked," who have no bank account at all.

In summary, underbanked individuals partially use the banking system but must supplement it with alternative financial services because traditional banking either does not fully meet their needs or they face obstacles accessing its full range.