Washington ? 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 checks, 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 check-cashing businesses and retailers, including Wal-Mart.

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

They tend to be minority – Hispanic or blacks especially – as well as low income and young.

According to the Federal Reserve, about one in 12 families – 8.7 percent – does not have a bank account.

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

‘Bank stuff’

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 keeping in enough money 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.

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

Both he and Maren do their financial transactions at a check-cashing outlet in the Adams Morgan neighborhood of Washington, D.C. They say it is convenient and they like knowing upfront what they will be charged to cash their paychecks, 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 check-cashing outlets, found that on average it cost $24.45 to cash a $1,002 Social Security check last year. A blue-collar worker pays an average $19.66 every week to cash a $478.41 handwritten paper check.

Some frills

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 leveled 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. Moreover, what may work in Houston does not necessarily prove fruitful in Fresno, Calif.

Adding to the challenge, the bankless are slowly spreading out. Hispanics and immigrants have moved beyond traditional ports of entry, such as big cities on the coasts and in border states; they are settling in Tennessee, North Carolina and Indiana. In the same way, people without bank accounts have move around.

Other financial lifelines

Federal Reserve research found that the most common reason families gave for not having checking accounts was that they did not write enough checks to make it worthwhile. Many people said they did not like dealing with banks.

Some – regulators could not provide a percentage – are in the country illegally. Without some proof of identification such as a driver’s license or a passport, they cannot set up a bank account.

Check cashers and other outlets give them a financial lifeline.

“You purchase the transactions you need, when you need them. Prices are posted. There are no surprises,” says Joseph Coleman, president of Rite Check Cashing Inc., which operates stores in New York City’s Harlem neighborhood and the borough of the Bronx.

Over the years, technological innovations have spurred a range of products for people without bank accounts.

Some employers, not wanting to deal with the expense of paper checks, load employees’ paychecks onto electronic cards that can be swiped at the supermarket, restaurant and other places or used to pay bills. These cards have federal protections, such as liability limits for unauthorized use, says Jean Ann Fox, director of consumer protection at the Consumer Federation of America.

‘Easy to lose’

Some of the potential perils for the bankless include theft, forgetting where you stashed your cash or losing your money.

“If you have most of your money in a bank. You have protection. If you are carrying it all in cash, it is easy to lose, easy to be stolen and easy to spend,” Fox says

In Prince William County, Va., there were 351 robberies last year and more than 40 percent involved Hispanic victims – many of whom were new to the country – who had large amounts of cash on them, says Police Chief Charlie Deane. Many of the robberies occurred on paydays – Thursday or Fridays.

The robbers, when caught, have told police they targeted the victims because “they knew they were carrying cash,” he said.