Bankrate study reveals latest checking trends
The biggest news from the 2010 Checking Study is the reversal of an industrywide, nearly decade-long trend toward widespread adoption of free noninterest checking. That means many consumers are seeing monthly service fees on their banking statements for the first time since the second Bush administration.
It’s hard to pinpoint the exact causes of this fee renaissance, but a wave of new government regulation is a big factor, says Greg McBride, CFA, senior financial analyst for Bankrate.com.
He cites two regulatory changes: a new Federal Reserve rule barring banks from charging for overdraft protection unless a customer opts in, and the overhaul of financial regulation passed earlier this year. FinReg will eventually limit the interchange fee that banks charge for debit card transactions.
“It’s no surprise we’re seeing higher balance requirements and higher monthly service fees on the heels of this legislation that is really working to crimp these two revenue streams that banks have come to rely on,” says McBride.
The study’s data come from surveying the five largest banks and five largest thrifts in 25 of the nation’s biggest markets. We asked those institutions about terms on one generic noninterest account and one interest-bearing account for the general consumer.
Free checking accounts getting scarce
Just 65 percent of noninterest accounts were free from monthly fees or balance requirements, the hallmark of a free checking account. That’s down from last year, when 76 percent of checking accounts were free, and it reverses a trend of free checking accounts grabbing a steadily larger share of U.S. bank offerings.
Still, the news isn’t all bad for consumers. When you add in accounts that can be free under conditions such as agreeing to make direct deposits or to carry a debit card, the total number of accounts offering free checking rises to 88 percent, McBride says.
Tip: Those consumers who find they no longer have free checking accounts may not even need to switch banks to find a better deal, says McBride. Many banks offer multiple types of checking accounts; you may be able to find free checking among your bank’s other offerings. If not, you can use Bankrate’s checking account database to shop around, either for a new bank or one of the vast majority of credit unions that still offer free checking.
Avoiding monthly service fees gets harder
For those checking accounts that already require you to keep a minimum average balance, that minimum was up sharply from the 2009 average of $185.75. The minimum average balance for a noninterest checking account is now $249.50, an increase of $63.75 in just one year. Overall, that number is 228 percent higher than 2008’s average of $109.26.
Interest-bearing checking accounts have a history of requiring hefty balances to keep from incurring fees, and this year is no different. Mirroring their noninterest brethren, the average minimum to avoid fees on an interest checking account rose $511.22 to $3,883.40.
Tip: Interest checking account holders who consistently get caught below the minimum should consider going with a noninterest checking account linked for easy transfers to a high-interest savings account. That way, they can get financial flexibility similar to an interest checking account, without having to park a large chunk of money at an interest rate averaging 0.1 percent to avoid service fees, says McBride.
Service fees go up
Those checking account holders unlucky enough to be stuck with monthly service fees have seen those fees rise in the last year. For noninterest checking accounts, the average fee rose from $1.77 in 2009 to $2.49 in this year’s study, marking the first time the fee has risen year-over-year since Bankrate’s first checking study in 1998.
Interest checking accounts also saw higher service fees in this year’s study, with the average fee ticking up to $13.04, a slight increase over the 2009 average of $12.55.
Tip: If you find yourself paying monthly service fees that are too high, consider switching to an account that waives such fees in exchange for requiring you to do most of your banking online. Because online banking doesn’t force banks to spend money on overhead-intensive services like sending out paper statements and paying bank tellers, banks often charge less for accounts that require you to bank online, McBride says.
ATM fees drift higher
Add “rising ATM fees” next to death and taxes on the list of life’s inevitabilities. Bankrate’s 2010 Checking Study shows the decade-long trend of rising fees on ATMs continuing.
The average surcharge charged by another bank ATM providers to make a transaction rose from $2.22 to $2.33.
More customers also will experience the double whammy of paying to use an ATM outside their bank’s network and having to pay a fee to their own bank for the privilege. The percentage of banks charging customers for using a nonbank ATM was up 2.7 percentage points over last year, rising to 75 percent. The fee those banks’ customers will pay also climbed, jumping from $1.32 in 2009 to $1.41 in 2010.
For example, say you’re out and need to get cash, but you can’t find an ATM for your bank, Fat Fee Capital, and the only ATM close by is owned by Gouge Bank and Trust. When you take money out of that ATM, not only do you pay a surcharge to Gouge Bank and Trust for the use of its ATM, but when you get your monthly statement from Fat Fee Capital, you’ll also see a fee for going outside its ATM network.
Tip: You can avoid all types of ATM fees by planning your cash withdrawals to keep an adequate supply of cash in your pocket so you won’t have to resort to using another bank’s ATM. In a pinch, you can get cash without an exorbitant fee by going into a pharmacy or grocery store and buying a small item with a debit card, then getting cash back.
Bounced-check fees hit new high
Bouncing a check is never fun, but if it feels like it gets costlier every year, you’re not imagining things. For the 12th year in a row, bounced-check fees hit a new record — $30.47, up from in last year’s $29.58.
Bounced-check fees, known in the industry as nonsufficient funds fees, have been one of the biggest moneymakers for banks in the past, along with debit overdraft fees. The bounced-check cash cow might get a little skinnier, and serial overdrafters’ wallets a little fatter, with upcoming FDIC regulations requiring banks to change the way they calculate bounced-check fee totals.
Tip: Contemporary checking accounts offer a number of ways to keep track of your balance and avoid overdrafts, including cell phone text and e-mail alerts that tell you when your balance gets below a certain point, says McBride. Failing that, many banks allow you to set up a link between your checking and savings accounts that will allow your bank to tap your savings account to meet any shortfall for a nominal fee.
Average yields on interest-bearing accounts fall
When Bankrate’s checking study started in 1998, interest checking accounts boasted an average yield of 1.35 percent. Even better, you only had to have a balance on average of $1,561 to avoid costly monthly service fees that could quickly wipe out any interest earnings. Those characteristics made interest checking accounts an attractive option for those who typically carried high checking account balances to get a few extra bucks of yield each month.
Fast forward to 2010. With the yield dropping to 0.1 percent, down 2 basis points from last year’s average interest rate of 0.12 percent, and an average minimum balance that’s more than double the 1998 figure, interest checking doesn’t seem like such a great deal.
Tip: If you’re determined to earn interest on the cash in your checking account, there are some online banks and credit unions offering much higher interest rates, especially if you’re willing to carry a high balance or make a certain number of “swipe and sign” debit card transactions per month.
Less is needed to open accounts
One bright spot in Bankrate’s 2010 Checking Study was a continuing trend toward lower opening balance minimums to open a noninterest checking account. This year’s study found the minimum to open the average checking account was $64.40, down from $68.32 last year and $87.67 in 2006.
For the 7.7 million Americans without any kind of transactional bank account, that means a lower barrier of entry into the many benefits of checking, including free check cashing and debit cards. A 2009 FDIC study found that 12.7 percent of those who had never had a bank account cited minimum opening balance requirements being too high as a factor in their unbanked status.
Tip: If you’re looking for an account with a low opening balance, the good news is requirements vary widely between different institutions. In Bankrate’s 2010 Checking Study, the banks surveyed were asking for opening balances on noninterest checking accounts from $0 to $2,000. Additionally, the majority of credit unions we surveyed in Bankrate’s 2010 Credit Union Study had no minimum to open at all.