Is the Demise of Free Checking Imminent?

Over the last six months or so, there has been speculation about the end of free checking accounts. With banks looking for ways to generate revenue in the face of fee caps and other rules associated with financial regulatory reform, it seems almost natural that they would turn to more fees. After all, fees are one of the ways that banks make money. But, for consumers used to the benefits of free checking, this might come as a blow.

Does it really cost that much to offer a free checking account? According to the Wall Street Journal it does:

"More than half of all checking accounts are currently unprofitable, according to a report issued last month by Celent, a unit of Marsh & McLennan Cos. It costs most banks between $250 and $300 a year to maintain one of the roughly 200 million checking accounts, according to industry estimates."

Even so, some consumer advocates might point out that fees earned from credit card interest, loan interest, interchange fees, late fees and overdraft fees are probably more than enough to offset the cost of unprofitable checking accounts. However, that isn’t stopping some banks from imposing fees if certain conditions aren’t met. These conditions might include minimum balances and activity requirements. Often, activity requirements include a certain amount in monthly deposits, or the use of the debit card on a regular basis.

One of the experiments being considered has been revealed by Bank of America. The Charlotte Business Journal reports that Bank of America is offering new tiers of checking accounts and savings accounts. Each tier has different requirements – and different fees. Those who deposit less than $2,000 a month, and who want to interact with a teller, would likely be hit with a monthly fee.

Not every bank is getting rid of free checking, though. Many banks still offer free checking as long as certain requirements are met. Additionally, there are still some community banks and credit unions willing to offer free checking accounts – no strings attached.

It is important to read information your bank sends you, since your checking account might be automatically converted to one with a fee, or have new requirements attached to it. Correspondence from your bank can provide you with the heads up you need to avoid being surprised by new fees and new policies. It can also give you time to shop around for a new bank if you are not satisfied with the new situation offered by your bank. In some cases, if you make a high enough number of deposits, maintain a high minimum balance, or make a lot of debit card transactions or automatic bill pay, you might be able to avoid fees even if your checking account is no longer "free."

Carefully evaluate your options, and consider what is available to you. You will need to make a decision about your checking account (and your savings account) that is best for you. Shop around online and at local financial institutions to find what is likely to be best for you and your money.