Lower fees, more free accounts in 2002
By Laura Bruce • Bankrate.com

The news about checking accounts is a bit brighter this survey.

Some banks have lowered their fees and balance requirements for maintaining an account. There are also more free checking accounts than ever before -- although the overall number is still very small.

Most banks still don't assess per-item fees if, for instance, you write more than a certain number of checks. And, the number of banks that let you access your account online has risen.

This doesn't necessarily mean banks have decided to give customers a break.

"Keep these fees in perspective," says Bankrate financial analyst Greg McBride. "Even with the moderation, many are still higher than they were a year or two ago. Before we assign a kinder, gentler label, the consumer should see a more prolonged trend."

McBride believes many banks may simply be juggling their account offerings.

"On average, banks offer four accounts, so they may jockey the fee and balance requirements among those different accounts in a way that brings the average fee down. Profitability and viability have become central issues over the past couple years, and we're seeing that reflected in many of their fee structures."

Yields on interest-bearing accounts are lower than ever and usually not worth the required minimum balance. And, fees for bouncing checks have reached an all-time high -- a punitive penalty that repeat offenders may deserve, but perhaps not customers who inadvertently overdraw their accounts once a year.

As always, this edition of the Checking Account Pricing Study gives you the lowdown on everything from fees and monthly service charges to yields and minimums required to open an account. In addition, there are sections covering ATM fees and Internet banks.

Bankrate.com researchers compile the data by surveying 1,261 accounts. Forty-three percent (545) are interest accounts and 57 percent (716) are non-interest. The report covers 350 institutions representing the largest banks and thrifts in each of the 35 largest U.S. markets.

Clearly, checking accounts are not a one-size-fits-all proposition. If you write a lot of checks and keep a high balance, you'll want an account with features very different from the person who writes a dozen checks a month and keeps a low balance.

This study has an interactive section to make it easy for you to find the accounts in your metropolitan area that suit your checking needs.

We've designed three scenarios and applied them to all accounts in the study. Each scenario assumes a $1,500 balance is maintained in the account:

• Typical: 12 transactions a month, one bounced check a year
• Transactor: 25 transactions a month, one bounced check a year
• Saver: 12 transactions a month, no bounced checks during the year

Here are some of the major findings of the Spring 2002 Checking Account Pricing Study:

Yields get slimmer
Yields on interest checking accounts have dropped to an average of 0.61 percent.

That's down from 0.97 percent in the fall 2001 study.

Banks have been stingy with yields for quite some time, due partly to the fact that we're in the lowest interest rate environment in 40 years.

More than 77 percent of the interest accounts surveyed yield less than 1 percent.

Minimum balance to earn interest
The fact that banks are paying less interest doesn't stop them from raising the minimum balance required to get that 0.61 percent. The average minimum balance required to open an account and earn interest rose 3 percent to $718.40. That's 5 percent higher than a year ago and 8 percent more than what was required in October 2000.

If a non-interest account is fine with you, you'll have to pony up an average of $74.98 to open a checking account. That number has been pretty consistent for the past few years and is actually down 1.7 percent from last fall.

Balance to avoid fees
Despite the increase in balance needed to earn interest, a bright spot for folks who like interest-bearing accounts is that the average minimum balance required to avoid fees dropped by 4 percent in the last sixmonths.

Nonetheless, it's still pretty steep, $2,330.60.

For non-interest accounts, the minimum balance required to avoid fees is $352.65 -- a drop of 13 percent since last October and another statistic highlighting the big difference between interest and non-interest checking accounts.

Monthly service fee regardless of balance
Sometimes it doesn't matter how much money you have in an account -- you'll still have to pay a monthly service fee. The number of accounts fitting that scenario dropped from 402 to 396 since October.

Monthly service fee -- interest account
More good news. The average monthly service fee on interest accounts declined by 1.6 percent to $10.67 from the peak of $10.85 last fall. More bad news. That's 11 percent higher than the average just three years ago.

The average monthly service fee dropped a bit for non-interest accounts, too. It now stands at $6.11, 1 percent less than the $6.19 average last fall.

Per-item fees
Most accounts still do not assess per-item fees. An example of a per-item fee is when you're allowed to write a limited number of checks per month, and the bank charges 25 cents for every check over the limit.

Among interest accounts, 88.4 percent do not assess per-item charges -- the highest percentage since spring 2000. More than 70 percent of non-interest accounts don't have per-item fees.

Free items
When it comes to the relatively few accounts that carry per-item charges, the average number of free transactions is 17 for interest accounts and 12 for non-interest accounts. Those numbers are the same as in the last study.

The average per-item fee after exceeding the allotted free transactions is 33 cents for interest accounts, down from 34 cents in October. For non-interest accounts, the average is 56 cents, up from 54 cents in October.

The reason interest accounts provide more transactions, a lower average per-item fee, and have fewer accounts charging the fee is because they have higher service fees and balance requirements that usually buy the consumer an unlimited number of monthly transactions.

Free checking accounts
Big differences between interest and non-interest accounts in terms of minimum balances required to open an account and the minimum balance required to avoid fees make it clear that for most people, non-interest accounts are the better deal.

Another decisive factor is that the majority of free accounts are non-interest.

Free accounts have no monthly service charges or per-item charges regardless of balance.

A total of 110 accounts are free as of this survey, vs. 96 in October. Unfortunately, that's just 8.7 percent of all accounts surveyed. Currently, 98 of the free accounts are non-interest, while 12 pay interest.

However, sometimes it can be remarkably easy to get a free account; you may just have to sign up for direct deposit of a paycheck or a government benefits check. Other banks may have other stipulations, such as bypassing the return of checks or image statements, or refraining from visiting tellers -- in other words, banking primarily by phone or ATM.

Non-sufficient funds fee
Bouncing a check keeps getting more expensive. The average non-sufficient funds (NSF) fee reached a new high of $25.21, a 1.4 percent increase since October.

The highest NSF fee, $35, is the same since October 2000. The lowest NSF fee, $14, is up from $12 in October.

If you're the type of person who has a hard time balancing a checkbook, it's a good idea to get overdraft protection. Overdraft protection is available on 96 percent of accounts.

Accounts offering online access
Online account access is becoming more prevalent. Ninety percent of interest accounts offer it, up from 85 percent in October. That compares with 94 percent of non-interest accounts -- the same as last fall.

Online bill pay availability also increased from 83 percent to 85 percent on interest accounts, while holding steady at 94 percent for non-interest accounts.

-- Posted: March 28, 2002