Free Checking: Not Dead Yet

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There has been plenty of discussion — even angst — in the consumer banking market over the apparent demise of the venerable free checking account. Study after study touted the evidence that free checking was at death’s doorstep. But fresh evidence suggests that the financial media may have been a bit early on writing that obituary.

The newest data comes from the most recent version of the MoneyRates.com Bank Fee Survey, released July 26.

The survey reveals something surprising, considering all the recent chatter in Washington and on Wall Street that free checking was on the way out. The study reports that 44.2% of checking accounts offered in the U.S. today have no monthly maintenance fees. The MoneyRates.com report also concludes that the percentage of banks offering free checking accounts hasn’t budged in the past six months.

There is some more interesting news from the study. According to MoneyRates:

Minimum balances have declined. Banks will often waive checking account fees if a certain minimum balance is maintained. The minimum balance required to avoid monthly maintenance fees fell between the January and July releases, as did the minimum balance required to open a checking account.

Monthly service fees have declined. For those customers who are paying a monthly maintenance fee, there was a slight drop in the average fee, from $5.90 to $5.85.

ATM fees are on the rise. Banks are starting to make up some of the fees they lost due to the government overhaul of the banking industry in concrete ways. One fee generator is ATM fees. The MoneyRates.com survey says that if you use an ATM outside of your bank, you’ll pay the price. The study pegs the new ATM fee average at $2.14, that’s about 14% higher than the $1.88 average that the study estimated in its last survey in January.

Overdraft fees are higher. Despite all the talk about overdraft fees, and how the new rules coming out of Washington will curb them, overdraft fees are still on the rise. The study says that the current overdraft fee is, on average, $29.26. In January, that number was at $28.81.

But it’s the resurrection of the free checking account (or at least the early reports of its demise) that may raise the most eyebrows among consumers. The study’s authors wonder if banks threatening to abandon free checking accounts are a shell game designed to scare regulators off the trail of higher bank fees. Writes Richard Barrington, MoneyRates’ personal finance guru, banks may be beating the “end of the free checking” drum as a “scare tactic.”

“When trying to avoid regulation, it's a time-honored tradition for businesses to cry poor,” he says. “I think that's where all the stories about the death of free checking have come from — bankers trying to scare the public, and by extension the politicians, about the consumer impact of regulation. Our latest data set paints a different picture, at least so far.”

Barrington advises caution, however. The banking industry is highly dynamic right now, and the January 2011 numbers from MoneyRate’s next study could, he says, tell a different story.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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