Checking accounts keep climbing in price
By Laura Bruce • Bankrate.com

The privilege of writing a check to pay a bill or stick in a birthday card keeps getting more expensive. Banks are socking consumers with higher fees and service charges while cutting the interest rate -- which was pretty miniscule to start with.

Although debit cards are growing in use, checks remain the favorite payment method for most Americans, and Bankrate's semiannual Checking Account Pricing Study will help you find the best deal on a checking account that suits your needs.

Every six months, Bankrate researchers review hundreds of accounts nationwide, compiling data on things such as fees, monthly service charges, yields and minimums to open an account. They also study ATM fees and compare the difference in costs between Internet banks and traditional brick and mortar institutions.

The Fall 2001 Checking Account Pricing Study includes 1,276 accounts, more than in any prior Bankrate study, from 350 institutions. The institutions are the 10 largest banks and thrifts in each of the top 35 metropolitan markets in the United States. Of the 1,276 accounts surveyed, 43 percent pay interest.

When it comes to checking accounts, everyone's needs are different. If you write a lot of checks, but don't mind maintaining a sizable balance, the checking account that fits your needs is different from the account that suits someone who writes relatively few checks and doesn't want to carry much of a balance.

We've made it easy for you to find the most suitable checking account for your needs. Our interactive section lets you choose a metropolitan area and then select the checking "personality" that best fits your habits.

First, let's look at some of the findings of the Fall 2001 Checking Account Pricing Study.

Average yield
A checking account isn't a good place to earn interest -- especially in the current declining-interest environment. For the first time, more than half of all interest accounts offer a yield of less than 1 percent. The average yield on interest checking accounts fell from 1.17 percent in the previous two studies to 0.97 percent this time around.

Average minimum balance to earn interest
The yield is especially pitiful, considering that the average minimum balance required to open an account and earn interest is $695.10. That's a 5 percent increase from one year ago and a 1.5 percent increase since the Spring 2001 Checking Account Pricing Study.

"You're not compensated for keeping that balance," says Greg McBride, Bankrate.com financial analyst. "It drives home the point that interest checking is not what consumers should be pursuing."

On the other hand, if a noninterest bearing checking account is OK by you, you'll only have to pony up an average of $76.30 to open one. That's just 38 cents more than the average three years ago.

Average balance to avoid fees
The difference between interest and noninterest checking is even more pronounced when you look at the balance needed to avoid fees.

If you want to avoid monthly service fees and still get that meager 0.97 percent interest rate, you'll have to keep an average balance of $2,434.50 in your account. That average minimum balance has increased 5.6 percent annually since 1998. But the average minimum balance to avoid fees in a noninterest checking account is at its lowest since October 1998 -- $408.16.

Average monthly service fee
If you don't want to keep a high balance in an interest checking account, you'll find an average monthly service fee draining $10.85 from your account. That fee has jumped an average of more than 4 percent annually over the last three years.

Conversely, the average fee on noninterest accounts has dropped since our last survey and now stands at $6.19.

No monthly service fee, no minimum balance
Checking accounts with no monthly service fee and no minimum balance are out there, but hard to find. Just 13 percent of noninterest accounts and 3 percent of interest accounts are free of monthly service charges regardless of the account balance.

Per-item charges
Just 23.5 percent of accounts surveyed charge a per-item fee. Per-item charges are far less common than monthly service fees and accounts that do charge per item usually allow a number of free transactions before assessing the fee.

Interest accounts typically provide an average of 17 free transactions while noninterest accounts average 12 freebies.

Free checking
The number of free accounts -- those with no minimum balance, no monthly service charges and no per-item fees -- is growing. In fact, 7.5 percent of all accounts surveyed are free -- an all-time high.

The rarest of the rare accounts is a free checking account that pays interest. Just 1.6 percent of interest-bearing accounts can be classified as free.

Bounced checks
Bouncing a check will cost you a bundle. The nonsufficient funds or NSF fees have risen steadily -- an average of 4.5 percent annually. On average, it costs $24.85 to bounce a check. That's a new record.

Overdraft protection
If you have a tendency to bounce checks, perhaps you should look into overdraft protection. It's a way to protect your wallet from those whopping NSF fees and it's available almost universally for both interest and noninterest accounts.

Returned canceled checks
The percentage of accounts returning canceled checks or image statements is virtually unchanged since the spring 2001 survey. Among interest accounts, 95 percent return one or the other, and 81 percent of noninterest accounts return checks or images.

The bottom line, says McBride, is tie up as little money as possible in your checking account.

"Fees are going higher, balances to avoid fees are going higher and the yields are going down," he said.

"The bright spot is the fact that there are more noninterest accounts that are free. Consumers should divert their excess cash to higher-yielding instruments."

-- Posted: Sept. 28, 2001