Q&A: The End of Free Checking?

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Q: My husband heard a rumor that our bank was going to end its free checking program. It’s not the end of the world if it happens, but is it worth it to call and complain — or even switch to another bank? — J. Weber, West Palm Beach, Fla.

A: We can’t say if your bank is ending free checking — to paraphrase that old shampoo commercial, only your bank knows for sure.

But there’s no question there’s an overall trend among big banks to get some of the money they’re losing over bank overdraft reform back in other fees. And it increasingly looks like one of those fees would be on free checking accounts.

It seems like everyone is pointing fingers at Bank of America (Stock Quote: BAC) this week, after The Wall Street Journal reported the bank would end its free checking program and start charging an unnamed fee for free checking and some other basic banking services.

The Journal claims that big banks like Bank of America who are cutting way back on overdraft fees on debit card purchases and at the ATM need to make the money up somewhere else. The Center for Responsible Lending reports that overdraft fees on debit cards and ATM transactions account for about half of all overdraft fees, which total nearly $24 billion annually. Let’s not peddle any fairy tales here — banks will make that money up somewhere else.

In fact, the cake is in the oven right now. Banks claim that it costs them up to $300 per year to “manage” each individual checking account. The Journal reports that there are about 200 million bank checking accounts active in the U.S. today. It’s not clear what the amount of the rumored Bank of America free checking account fee will look like, but the paper does say that customers can avoid the fee by maintaining minimum checking account balances, using direct deposit or using their debit cards a minimum number of times each month. Banks can earn anywhere from 1% to 2% on a signature-based debit card transaction, according to the Stamford, Conn.-based business analysis firm Gartner.

Some banks have already dipped their toes into the fee-for-free checking waters. Fifth-Third (Stock Quote: FITB) beefed up its checking account identity fraud services in May 2009 — and charged $8 per month for the service. Chase (Stock Quote: JPM) customers may have noticed that the bank renamed its Chase Free Checking program as Chase Checking. It began charging customerswho didn’t make at least five debit card purchases per month or use direct deposit $6 a month last year.

So it’s not just Bank of America. If one of those banks is yours, then the end of free checking may become a fact of life. Either try to play the game and make those minimum balance and debit card use requirements, or be prepared to pay a few bucks a month for free checking.

Or, scale down and visit your local credit unions. They want your business and will likely continue to offer free checking — at least for a while.

Otherwise, prepare yourself for the coming wave of “maintenance” fees on bank checking accounts. In fact, that wave is here right now.

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