Best Black-Owned Banks | The Motley Fool (2024)

Our Methodology: How we decide which Black-owned banks to list on this page

How did we decide which Black-owned banks to recommend on this page, you ask? Here's the thing: We at The Ascent only recommend Black-owned banks we'd pass along to our brothers, sisters, and mothers. Big banks can't pay to play ball, and we'd be bummed if they did -- we recommend these Black-owned banks to family members who ask. (And sometimes when they don't. We wouldn't wish crummy banks upon anyone -- no, not even that guy.)

Black families have been in this country for more than 400 years. And yet, Black people hold a fraction of the wealth held by white families. According to the Institute of Policy Studies, 37% of Black families in the U.S. have zero or negative wealth, meaning their debts are equal to or greater than their assets. The same is true of 15.5% of white families.

While we all know of wealthy Black celebrities, athletes, and business owners, financial success has been tough to achieve for the majority of Black Americans. And it can easily be traced back to a culture that finds ways to prevent Black families from building wealth. For example, if a society can find subtle ways to deny housing loans, it can steer Black people toward certain areas of town. And if those areas have poorly performing schools, it's harder for Black children to get the education they need to succeed in a competitive workplace. It's a systemic cycle designed to keep people in poverty and unable to take their rightful place at the table.

If you've ever bounced a check or been late with a payment, you know how easy it is to make a mistake. And if there's a flag next to your name in ChexSystems or some other check verification service, you may have trouble opening a bank account the next time you move. For years, Black people have been barred from opening bank accounts because they had a negative experience in the past that shows up on ChexSystems. It could be anything from overdrafts to suspected fraud or identity theft. This has prevented untold numbers of Black people from banking with a traditional bank or credit union.

READ MORE: What Is ChexSystems?

What happens to a Black American who can't open a bank account? Here are a few disadvantages of not being able to access banking services:

• You might waste a load of money at check-cashing stores.
• You may have to use prepaid cards with expensive fees.
• You might have to borrow money from payday lenders with predatory interest rates frequently exceeding 400%.

For some seeking a financial institution, a Black-owned bank is necessary. They want to know that the people who run the bank understand what it's like to live in Black America, to have trouble qualifying for a credit card, or to get ahead enough to build a savings account balance. They want to walk into a branch location and know they are welcome there and have access to second-chance banking and overdraft protection. For some, only a minority depository institution can provide what they're looking for.

To illustrate the history of racism in banking, here is an overview of the rise and fall of the Freedman's Savings Bank, according to information from the Office of the Comptroller of the Currency.

In 1865, the Civil War ended and the 13th Amendment abolished slavery. Around that time, Congress acknowledged that Black people would need education, financial services, and capital.

The Freedman's Savings Bank was established in March 1865 to provide Black people with the same types of banking services formerly reserved for white men. But, as explained by author Shawn Rochester, Freedman's Savings Bank may have been marketed as a Black bank, but it was run by white managers. They controlled around $3 million from 61,000 Black depositors, and they made risky investments with those funds.

The bank appeared to grow quickly, but not quickly enough to pay for overexpansion. Plus, a shaky postwar economy led to a financial crisis known as the Panic of 1873, which further reduced the bank's investment portfolio.

By 1874, managers had wiped out all deposits, and Freedman's Bank collapsed. While the government promised to return some of the lost funds to customers, most received nothing -- or pennies on the dollar. This is just one example of why Black Americans have lost faith in the banking system. And many are unwilling to trust their hard-earned money to an institution that does not look out for them.

READ MORE: Beginner's Guide to Banking

If you're interested in helping the Black community (no matter your skin color), one way you can do it is by becoming a customer.

Here are just a few of the services Black-owned banks offer:

• Serve as a community development financial institution
• Provide loans to small businesses
• Help home buyers purchase their first home

If you're not Black, it's not a problem. Black-owned banks do not discriminate.

To find the right bank for you, take the following steps:

1. To narrow your search, decide how you want to bank. Do you want a bank that's close to home or would you prefer to do your banking online?
2. Determine which financial services are important to you. You may want a no-fee bank -- or one that pays competitive rates on savings accounts, money market accounts, or certificates of deposit.
3. Request a copy of your top banks' terms and conditions. Read these documents carefully so you know what you're agreeing to and can pick the right option for you.

Some Black-owned banks have branches, while others allow you to bank entirely online. That means if the bank you're interested in joining is based in North Carolina but you live in another state,you can still become a bank customer. One of the advantages of having online access to your bank is that you can take it with you. You don't have to worry about there being a branch wherever you go.

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