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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.

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Previous Comments
  |     |   Comment #1
Watch out for Chase.  When it took over WAMU, we were promised that our free checking accounts would remain free "for life."   Turns out it was a pie-crust promise -- easily made, easily broken.  Now we have received notices that there will be a monthly fee of $12.00 if the balance in an account falls below $1,500 on any day in the month, unless you have linked accounts with a combined balance of at least $5,000.  At least that is my understanding of this new policy.  I have linked my children's accounts to mine because they often allow their balances to fall below $1,500.  It remains to be seen if this strategy will work.  Well, we'll know starting February 6.
  |     |   Comment #2
I got the letter too.  I closed all accounts. I found that Chase started slowly in taking away what used to be free from WAMU.  The letter was the last straw.  There are so many options out there other than Chase with better deals that I suspect they will get dinged in the end. 
  |     |   Comment #3
Strikes me as robbery to charge a fee on a checking account on which they give you NO interest. FREE checking has typically given no  interest on your money. And they turn around and lend that money out on credit cards at maybe 20% and mortgages (in normal times) of around 8%. 

You mean getting free money isn't profitable enough?! Until now, the lack of interest has always been the FEE you pay for the checking account. Now they want TWO fees?!

They will only get it if people stay around for it. If a bank starts that, close your account and take it to one that does not charge a fee. Those that want to give customers a good deal should get all the money, and let the ones wanting to charge a fee go out of business for lack of deposits. 
  |     |   Comment #4
Has anyone noticed that even credit unions seem to be doing likewise?  See this page on the CEFCU credit union in Illinois on the hoops you need to jump through for their "membership plans."

  |     |   Comment #5
Just closed all of my chase accounts today.. When I am trying to close the accounts, they didnt feel bad to lose a customer, they offered some candies too :-) at branch..

I will stick to my over a decade Credit Union... At this moment, I dont have any commercial bank accounts...
  |     |   Comment #6
My WAMU account remains free from when it was southtrust.

I have a free checking with Presidential that requires a $1000 minimum balance and pays a paltry rate. Havent switched because I use it for all my billpays.

Have a business account with what used to be Ascencia, again free checking with a $1000 balance. And a low rate of interest.

Finally, I have 2 rewards checking accounts. One local.

Really, I write very few checks. Mostly for taxes. The rest I use billpay for.  Reluctant to switch because Im used to Presidentials billpay setup. (Even though I know others are probably similar)

Frankly, Im not all that worried about it. Its like with a rewards creditcard. If the deals stop, I no longer use the card. The invisible hand serves me well.
  |     |   Comment #7
RJM you must be confused. Southtrust was bought by Wachovia which became Wells Fargo. Not WAMU.

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