Free checking accounts in America are gradually fading.
New laws are being imposed which decrease overdraft fees and interest rates resulting in a reduction to bank revenues, forcing the bankers to divert the expenses as additional checking account charges. According to a national study by Bankrate.com, which monitors large banks, checking accounts with no monthly charges or a required minimum balance dropped to 65 percent this year from 76 percent last year.
Customer may need to look after their spending and check into their financial balances in order to get checking-related services for free or at a low cost, according to consumer advocates. Here are some options offered to consumers. Direct deposit; online banking; debit cards; account links. The depositor may also choose to switch to smaller banks or credit unions which commonly offer free checking accounts.
According to Tower Group consultant Brian Riley, consumers must not get distracted by reward programs, citing a recent study showing that the Hawaii trip rewards could take years and $20,000 in debit transactions can build up. Consumers really need to focus on the services they want, he added.
Bank of America, for example, is charging a $8.95 monthly fee for its basic checking accounts. The fee, however, is waived provided the depositor can meet one of three conditions such as setting up a direct deposit of their payroll check; or online banking or ATM and receive their bank statements electronically; or keep an average $1,500 account balance.
Depending on one’s banking habits, one of the three conditions may match. Banking personnel may help you decide which option is best for you. You may be internet-savvy, in which case you would then choose an e-banking account; or if you are employed you may use direct deposit.
Bankrate.com senior financial analyst Greg McBride said, free checking became a virtual commodity and it is likely to change. Though, it will still push through for consumers who intend to having a free checking account.
Since 65 percent of checking accounts are free at big banks, the other 23 percent meet the conditions to avail free checking, according to a study by Bankrate.com. For those employed, you may route your salary payments directly into your account for free of charge through Wells Fargo, Chase, and others. Online banking is becoming widespread nowadays and there are banks such as INGDirect.com that offer an interest paying account and mail paper checks to the customers.
Bank of America also offers e-banking accounts, which accomplishes traditional banking over the Internet, saving the bank money on tellers in brick and mortar branches.
Switching to smaller community banks and credit unions offer more free checking options because unlike bigger banks, they expect lesser profit, said McBride. Big banks are the last to jump on the free checking bandwagon and they are also the first to jump off.
According to Meredith Gibson, senior vice president of marketing at Space Coast Credit Union, offers free no-interest checking; credit unions are mostly cooperatives that have obligations to its members, so a consumer would not be making money for personal investors or outside stockholders. But due to these regulatory changes which entails more compliance costs but less profits, even credit unions are looking into their own fees.
At the center of these changes is a consumer-protection law that cuts overdraft fees that produced more than $37 billion for banks last year. Another is a financial reform which slashes the “interchange fees” paid by merchants for purchases using a debit-card. These reduce cash that subsidize costs to open and maintain free checking accounts, said financial experts.
Fees charged by banks in other countries vary depending on the services they offer, which may be considered by U.S. banks to follow, according to Riley, Tower Group’s senior researcher. Expecting more cafeteria services, based on your choice, also means paying more, he added.
Prices are already on the rise for some services related to no-interest checking at big banks. An average of $249.50 is required for accounts that require a minimum balance, more than double the rate since 2008. Monthly fees increased by 72 cents from last year to $2.49 average, Bankrate.com said.
Experts warn that there is no such thing as free checking. Ken Thomas, a banking analyst of Miami says, usually, there is a catch such as a minimum balance, or a link forged to other services that carry fees and it is also difficult to switch accounts and most of the times it is not worth the free checking.
Many are questioning how banks can justify higher fees charged to the consumer, especially in today’s slow-paced economy.
But Kathleen Day, Center for Responsible Lending spokesperson said, banks may be able to reduce fees if they will reduce the amount of bonuses they pay their executives. She said that it is ridiculous if they said they are entitled to the revenues from overdraft and interchange fees.