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Insights into Banking Deals

When you get a good deal at a bank, you can bet there's something in it for the bank. Banks may be willing to take a loss in the short term, but the hope is that it'll pay off in the long run. This article provides insights into some of this strategy from the banks. Many banks are focusing on the checking accounts.

Bank executives used to focus on savings accounts and commercial lending, but now see consumer checking as a foundation of their business, cheaper than ever to manage and something of a loss leader for loans, investment accounts and the broad supermarket of services that banks can offer since deregulation in the 1990s.

The good news is that we should see more checking account deals and better checking account features. Here's what the article says about how checking accounts are changing:

Free, no-minimum-balance checking, introduced three years ago, is now the norm, and banking experts who follow this market closely say a variety of so-called nuisance fees -- foreign ATM charges, overdraft fees and the like -- will disappear next.

The problem for banks is getting people to switch. The article quoted a 2001 industry survey which estimated only 2% of all bank customers nationally switch their accounts for better deals on fees or rates. You would think with online banking that it would make it easier for people to switch banks. However, with online bill pay and other services, online banking is seen as something that will prevent customers from switching since customers won't want to go through the hassle of setting up and learning a new system.

I wonder if banks will have this same feeling about checking accounts as more and more people start linking their checking accounts to online savings accounts and brokerage accounts. Seems like this will cause the checking accounts to have less profit potential.