| Free checking: Make sure it's really
free |
| By Laura
Bruce • Bankrate.com |
|
Free checking accounts have been around for decades,
but like Elvis sightings, their popularity comes and goes. Right
now they're hot, hot, hot!
The 2004 Community Bank Competitiveness Survey published
by the ABA Banking Journal asked bankers if they had noticed an
upsurge in local competitors offering free checking in the past
year. Nearly 61 percent said yes -- a 40-percent increase over the
2003 survey.
"Free checking is not only a necessity, it's
almost insulting to the customer if you don't offer it," says
Frank Trotter, CEO at EverBank. "Checking is the centerpiece
of your financial life. Free checking is required in the market
today whether it's a traditional bank or a direct bank."
Serves the bank's interests, too
Free checking can be an aggressive way for banks to increase their
customer base and to find a cheap source of funding, according to
Steve Cocheo, executive editor at ABA Banking Journal. Once a bank
snares you with a checking account, the next step is to cross-sell
you -- encourage you to take out a personal loan, a mortgage, credit
card or, perhaps, use its investment services. But when bankers
in the ABA survey were asked to speculate on why they were seeing
an upsurge in free checking, the No. 1 answer was to generate a
base for fee income.
"It's the 'free checking, let's make money' era,"
says Michael Moebs, president of Moebs Services, an economic research
firm. "For the vast majority of consumers, financial services
is way down on their list of things they want to do on a day-to-day
basis, and they can be misled."
Consumers need to realize that "free" may
not always be free. The federal Truth in Savings Act requires that
a "free account" have no minimum balance requirement and
no maintenance or activity fees. A maintenance fee might be a monthly
service charge, while an activity fee could be a charge for writing
more than a specified number of checks in a month.
But that doesn't mean there can't be other fees.
"Most consumers think their checking account
is free, but they're doing something for it to be free -- maintaining
a balance or paying something. A very small percentage actually
has totally free checking," says Genie Driskill of Atlanta-based
Synergistics Research Corp.
Some fees considered OK
There are plenty of "legitimate" fees
that can be charged in conjunction with a free checking account.
Fees for nonsufficient funds, balance inquiries, stop payments,
check printing, dormancy and closing the account early are just
a few examples.
But some fees surprise consumers.
Many banks include a debit card with free checking accounts. More
and more people are finding out that their banks charge a fee every
time they swipe their cards at a cash register.
Another popular service that's
being automatically included with many free accounts is fee-based
overdraft protection. These programs charge a flat fee when an account
is overdrawn. Federal regulators are examining the fees that, in
some cases, have been pegged by consumer advocates as exorbitant.
The ABA survey shows that 40 percent of banks offer fee-based overdraft
protection and that 75 percent of those banks provide it automatically.
Oddly, nearly half the banks that offer the service won't allow
employees to use it.
Requirements that might disqualify
an account from strictly fitting the definition of free checking
aren't necessarily bad.
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