Recently there has been a great deal written about the end of the free checking account for consumers. Websites, magazines and newspapers have all but buried the free checking account. Luckily, to paraphrase Mark Twain, the death of the free checking account has been greatly exaggerated. Free checking accounts are alive and well at most credit unions.
It is true, however, that the free bank checking account is clearly headed toward extinction. According to a survey by Bankrate.com only 45% of even non-interest checking accounts today are free, down from 65% in 2010 and 76% two years ago. To qualify for a free checking account today from one of the banking behemoths you have to jump through way too many hoops – keeping a large sum of money in a related savings account, using your Debit Card a certain number of times per month, or requiring direct deposit are just a few examples. So what happened to the free checking account at banks?
Until recently the checking account has been a loss leader for the banking industry. Years ago if you opened a checking account you usually even walked out with some free stuff – a toaster or some other small gadget. Banks wanted your checking account because, while the account itself may not make money, it helped bring the rest of your business – savings account, credit card, home and auto loan. Making money on a checking account by charging exorbitant fees really wasn’t necessary.
Why did it all change at banks? The answer is plain and simple. Greed. Banks are for profit institutions that try to make a tidy return for their shareholders. As the default rate on loans has increased during this latest economic downturn and the rate environment has become less conducive for huge profits, banks have had to find other ways to increase income. If that means charging unnecessary and outrageous fees to their customers then so be it. Today, banks will charge a fee for just about anything – monthly maintenance fees for checking and savings accounts, ATM usage and balance inquiry fees, transfer fees from savings or your line of credit to cover a check, and the latest and possibly most egregious, the monthly fee for using your Debit Card. Take a look at the fee schedule of any of the giant banks and you will be shocked at all the different fees they have invented to take away your hard earned money.
Yet banks always try to justify the fees they charge for their products. Take ATM fees for example. Banks claim they are needed to cover of the high cost of maintaining the ATMs. However, the average fee for using a bank ATM is now over $3.80 a pop according to BankRate.com. For a fifty dollar withdrawal that is over a 7% surcharge just to access your own money. While it is understandable to charge a small fee to cover the cost of doing business, nearly $4 per transaction borders on usurious.
The latest fee the banks are attempting to justify is the above mentioned monthly fee for using a Debit Card. Legislation that went into effect on October 1 cut almost by half the fee income that financial institutions receive when the customer swipes a Debit Card to make a purchase. Before the new legislation every time somone used a Debit Card the bank or credit union would receive on average 44 cents from the merchant. Now it is only around 22-24 cents. To make up for this lost income the banks had to invent another fee to charge. Hence the monthly charge of up to $5 for using a Debit Card that many banks have instituted, most notably Bank of America.
So how do you avoid all these fees and still get a free checking account with all of the bells and whistles? Open an account at your local credit union. Credit unions are not for profit cooperatives that exist to serve their members – not make a profit for shareholders.
For example at Members we offer a fee free checking account with no strings attached. We don’t give you a toaster when you open a checking account at Members Credit Union. Instead, you get a lot of valuable free services with our checking account package. We’ll give you a Visa Debit Card with an automatic line of credit up to $500 for overdraft protection. You can use your Visa Debit Card to make purchases and ATM withdrawals without incurring any fees from Members Credit Union. You’ll have the option to use our electronic bill pay service at no charge. You can write unlimited checks and make unlimited withdrawals when you visit one of our branches. We won’t charge you if you transfer money from your savings account or line of credit to cover a check. And you don’t have to keep a certain amount of money in a related savings account or have any other account relationship with us to qualify for free checking. All we ask is that you have at least $25 in your account on the last day of the month to avoid a $3 low balance charge.
Free checking accounts do still exist. You just have to know where to look – at your local credit union.