Bank fees keep climbing, but
there are ways to avoid them
First in a five-part series: Checking Madness
By Libby Wells • Bankrate.com

The numbers are scary, but there are ways to beat them.

That is the message consumer advocates are pushing in response to Bankrate.com's semiannual checking account price study that exhaustively looks at what banks across America charge you today when you use their services.

Bankrate.com reviewed nearly 1,200 basic checking accounts at 353 financial institutions in the nation's 35 largest cities.

The conclusion: The cost of establishing -- and maintaining -- a checking account, the core relationship most customers have with their bank, is climbing at a steady pace.

Bounced check fees and ATM charges are on the rise, too.

Stay alert, shop around
To keep bank charges to a minimum, customers now need to remain more alert than ever to what their banks can do when, for example, balances dip, checks bounce or you use your ATM card, say the experts.

And some old-fashioned advice from mom has become "in" again: Shop around. There is competition and there are better bank deals out there.

The study found that the cost of keeping a basic checking account with a balance high enough to avoid fees has jumped $166, or 14 percent in the past year.

On average, a customer has to keep $1,294 in an account to evade monthly service charges, compared with $1,128 last year, the survey shows.

Tiny returns
Bankrate.com's analysis finds that interest-earning accounts, which average a piddly 0.84 percent, are the worst deals.

If you keep $1,300 in an interest-bearing account, it would earn $10.92 in a year. But if you put it into a high-yielding money market account earning 5 percent, it would grow by $65.

"Any interest income earned on these accounts is negated by the high minimum balance requirements to avoid fees, exorbitant monthly service charges and/or per-item charges," the survey says. "Analysis shows that consumers are much better served in finding a truly 'free' checking account, even if the account does not pay interest."

Some other findings of the survey are:

• The number of banks offering noninterest accounts that can be opened for $1 -- once a staple product -- has dropped from 23 percent to 16 percent;
• The minimum to open an interest-earning account averages $370, or $72 more than last year's average of $298;
• The amount you need to open a noninterest account, $76, has stayed the same since last year, but $100 is now the most common requirement;
• The opening minimum for all accounts combined -- interest- and noninterest earning -- has gone from $174 to $208, an increase of $34.
• If you can't maintain a high balance, you will pay about $7.82 a month, or $94 a year, in flat fees.

The survey found that the hit consumers take for writing a bad check averages $23.06, up $0.76 from just six months ago and $1.31 higher than in 1998. ATM surcharges average $1.38, but the most common fee is $1.50.

The cost of doing business?
Jim Mataya, regulatory specialist in the government relations division of America's Community Bankers, defends the price tag banks put on checking accounts.

"Checking accounts are a service that are extremely labor intensive. It's a very expensive process moving billions of pieces of paper every day," he says. "The typical bank has lots of resources in this process. It's almost like a free service."

Others see it differently.

Jean Ann Fox, director of consumer protection for the Consumer Federation of America, says technology has reduced costs and banks don't pass along the savings.

"The backroom operations are automated by computers. It's hard to believe that it's that difficult to provide basic banking services," she says.

Lots of writing going on
Checks are a huge source of profit for banks. According to a Federal Reserve Board study, $73.5 trillion in checks were cleared in 1995, an average of $201 billion a day. The overnight interest rate for that year averaged about 16 cents per check, or $11.7 billion.

Even though checks remain the most popular form of payment, with about 68 billion checks written a year, persistent increases put checking accounts out of reach for about 12 million Americans, and harder to afford for those who already have bank accounts.

"The fee structure does make it extremely difficult for limited resource families, including students, people struggling to reach financial independence by getting off welfare rolls and retired people," says Jane Schuchardt of the American Council on Consumer Interests and a senior fellow of the National Endowment for Financial Education in Denver.

"It's not only costs, but services are restricted, too," she says, citing such things as limits on teller visits, ATM transactions and the number of checks that can be written.

The price of safety
Folks living on a shoestring budget may be tempted to use check-cashing stores or money orders, but Fox says it's safer to stick with banks.

"Rising bank fees probably lead some people to give up a bank account and go to a cash-only basis," she says.

"But then you run the risk of having all your money in liquid form, making it hard to save and making you vulnerable to theft and requests for money. You also end up spending hundreds turning checks into cash to pay bills."

Her advice: "Shop as hard as you can and take your business elsewhere to minimize costs. Determine your needs and take an account that fits the way you will use it."

When looking for a place to bank, consider these options:

• Linked accounts -- Your savings account may offset minimum balance requirements for checking.
• Direct deposit -- Some banks offer free or low-cost checking if you have your paycheck deposited electronically.
• Express accounts -- If you do most of your business by ATM, phone or computer, these accounts feature unlimited check writing, and low monthly fees and balance requirements.
• Lifeline accounts -- Geared toward low-income people, these accounts are either free or cost no more than $6 a month. Minimum deposits to open and balance requirements range from low to nothing. There are limits to the number of checks you can write each month.
• Senior/student checking -- Some banks offer deals if you are in school or age 55 or older.
• Credit unions and community banks -- If you qualify to join a credit union, that is your best option. Products at credit unions are more affordable all around. Next to that, smaller regional or community banks offer the best checking deals.

-- Posted: Oct. 18, 1999