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You can still find free checking
if you search and end bad ATM habits

"Your Money Outlook" columnist Greg McBrideThe recently released Checking Account Pricing Study starkly points out that checking is getting more expensive. Fees are escalating; yields declining. With balance requirements, service charges, and ATM fees all trending higher, having a free checking account with free withdrawals may seem like a thing of the past.

But by zeroing in on no-cost checking accounts and adjusting a few habits, consumers can eliminate fees and maximize returns on their dollars.

Avoiding ATM fees
ATM fees can turn a "free" checking account into a high-cost proposition in a hurry. To avoid them:

  • Manage how often, and where, you make ATM withdrawals. One way to cut down on ATM fees is to cut down on the withdrawals that cost you. Using your own institution's ATM, even if it isn't the most conveniently located, eliminates the surcharges and "foreign" fees that squeeze consumers. The inconvenience of going out of your way to use a free ATM is mitigated with fewer trips to the ATM. For example, if your account only permits four free withdrawals per month, then manage how many withdrawals you make so as not to exceed that allotment.

  • Use the point-of-sale terminals located in supermarkets and convenience stores as a pseudo-ATM. Opting for cash back when making a purchase with your debit card or an ATM card that has such capability, is tantamount to a free withdrawal. In Bankrate's study, 83 percent of institutions do not charge a fee for point-of-sale withdrawals. This strategy is particularly suited for smaller ATM withdrawals because the ATM fees otherwise incurred compose a larger percentage of the withdrawal. If you have to pay $3 for a $20 ATM withdrawal, that's 15 percent of your total. But $3 is only 3 percent of a $100 withdrawal. The key is to center the point-of-sale usage around intended purchases, as buying $1 or $2 of unnecessary merchandise just to use point-of-sale doesn't save any money.
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Free checking lives!
Free checking still lives, although it takes more effort to find than in years past. In fact, nearly all of the 35 markets in the survey had at least one free account among the 10 largest institutions surveyed. Such accounts are more commonly found at smaller local and regional institutions, credit unions and Internet banks.

By finding a free account that requires no minimum balance, regardless of whether the account pays interest, consumers can most efficiently use their dollars.

Maintaining a balance of $2,200 at a yield of 1 percent just to avoid the monthly service fee does not qualify as efficient. The checking account is a transaction account. Treat it like a gas tank -- when it gets closer to empty, fill it up -- with your paycheck.

Keep only the money needed until the next payday, plus a buffer. With bounced-check fees averaging nearly $24, the cost of hitting empty is higher than ever.

Divert any excess funds to a more efficient use, whether that is investing, parking it in a high-yielding money market account, or paying ahead on credit card balances or other consumer debt. Instead of earning a yield of 1 percent, or paying excessive monthly fees, knocking out credit card debt costing 18 percent provides a much higher return to the consumer.

The analysis presented here is based on national economic data and the proprietary National Index. Since 1982, and its predecessor, Bank Rate Monitor, have been surveying financial institutions and gathering rate information about mortgages, credit cards, CDs, checking accounts and other financial products. The National Index is protected under copyright. Media outlets seeking additional data or commentary, please contact Greg McBride.

--Posted: Oct. 6, 2000

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