Grandma stuffing money under the mattress isn't the only one living outside the banking system.

As many as 28 million people in the United States are forgoing traditional financial institutions because of mistrust, cultural and language barriers or a belief that by the time all the bills are paid, there will be nothing left for an account.

That can be expensive and risky. People can run up big fees to cash cheques, pay bills and meet their other financial needs. Walking around with large amounts of cash can make them a target for thieves.

The bankless are estimated to earn hundreds of billions of dollars a year in income.

Seeing a business opportunity, banks are trying to draw in these potential customers. So, too, are cheque-cashing businesses and retailers, including Wal-Mart.

Many people, however, still resist, preferring to remain in the financial shadows.

They tend to be minorities — Hispanic or blacks especially — as well as low-income and young.

According to the Federal Reserve, about one in 12 families — 8.7 per cent — does not have a bank account.

The number is higher for the poorest, nearly a quarter of families earning less than $18,900 US, the Fed said, citing 2004 data.

For some, like Rosa Alvarez, the financial choices can be bewildering.

"I don't understand about this bank stuff," says Alvarez, 54, who lives in Texas.

A nagging fear that she might make a mistake "if I don't keep up with it right or something" keeps her from opening an account.

She had one once, briefly. But she had trouble keeping track of her balance. She thinks that when the account closed, she owed the bank $12.

Carlos Maren, 25, a cook, is afraid that if he opens a bank account in the U.S., he will get hit with fees for not maintaining a high enough balance or for taking out more money than he has.

"My uncle sometimes says that it's expensive … because if you don't have money in the account, [the bank] is going to be charging you," Maren says.

Cheque-cashing outlets popular

Leonel Mendoza, 32, a hospital worker, is not comfortable with banks.

Both he and Maren do their financial transactions at a cheque-cashing outlet in the Adams Morgan neighbourhood of Washington, D.C. They say it is convenient and they like knowing up front what they will be charged to cash their paycheques, buy money orders, and, in Maren's case, wire money to his native Mexico. He has a bank account there.

"It's not real expensive," Maren says.

Yet those charges can add up. A Consumer Federation of America survey of cheque-cashing outlets found that on average it cost $24.45 to cash a $1,002 Social Security cheque last year. A blue-collar worker pays an average $19.66 every week to cash a $478.41 handwritten paper cheque.

Having a bank account can be expensive, too, if it is not managed wisely.

Failure to keep track of an account balance can incur a penalty of $20 to $35 each time a cheque is bounced or an account is overdrawn.

"It can be costly to be outside the banking system. The poor pay more," says John Caskey, economics professor at Swarthmore College.

"On the other hand, if all you did is take that low-income person, living paycheque to paycheque, and moved them into the banking system, and they are bouncing cheques and incurring fees, you haven't done much and you may not have done them a favour," Caskey says.

Although there is no federal requirement for banks to offer low-cost, no-frill accounts, some do.

"Some have very low dollar accounts. Some have accounts that have to maintain a minimum balance," says James Ballentine, director of community and economic development at the American Bankers Association.

Ballentine's advice: "Do some shopping around."

The share of families without bank accounts decreased gradually from 1989 to 2001, then levelled off, the Fed said.

Banks have an economic interest in reeling in people outside the banking system — 10 million to 28 million individuals who earn $510 billion a year — and turn them into customers who eventually may need loans to buy homes, cars and other items.

Banks are working through community groups to ease fears, build trust and to educate people about financial options. It is a challenge that can take years, bank officials say.