checking

Have banks killed free checking?

Signing a check
Highlights
  • Consumers can expect some changes to their checking accounts.
  • Bankrate's study shows 39 of the 50 largest credit unions offer free checking.
  • Bank revenue streams are being squeezed through recent regulation.

Free checking has been a staple at banks over the last decade, but it may not be as widely available in the future. At least not in it's current string- and hurdle-free form.

"Credit unions, online banks and smaller community banks will continue to be viable alternatives either for free checking accounts, or very low cost accounts -- with low hurdles to avoid fees," says Bankrate.com Senior Financial Analyst Greg McBride.

Consumers, particularly those who use banking behemoths, can expect some changes to their checking accounts.

For instance, the monthly maintenance fee may make its return, along with some hurdles for avoiding it.

What to expect: fees and hoops
  • Monthly maintenance fee.
    Or,
  • Balance requirement.
  • Use of multiple products and services.
  • A certain number of debit card transactions per month.

"The maintenance fee may be avoidable either by maintaining a balance, having multiple account relationships or engaging in a certain number of debit card transactions per month," McBride says.

What can you do?

For banking customers simply looking for an inexpensive place to park cash from time to time, smaller banks and credit unions may offer a banking experience more in line with their lifestyle.

"As Bankrate recently found, 39 of the 50 largest credit unions offer free checking accounts. And that will continue to be a viable alternative for consumers looking to obtain free checking or avoid fees that may be instituted on their current checking account relationships," McBride says.

Another recent Bankrate study surveyed 211 banks and credit unions across the country for high-yield checking accounts. Fifty-eight offer the accounts, 41 of the programs are offered nationally.

Though they do come with requirements that need to be cleared every statement period, they offer a much higher than average yield.

If you're going to be jumping through hoops for your checking account, why not get paid while doing it?

Or, use Bankrate's database to find a checking account that works for you.

Why take away free checking?

Economically, it seems like an inopportune moment for banks to throw more fees at already strained consumers.

But, banks themselves are under pressure to make money.

"The cost of providing a free checking account has been underwritten through a couple of different revenue streams: overdraft income and debit card interchange fees," says McBride.

"Both of those revenue streams are being squeezed through recent regulatory and legislative moves," he says.

A new regulation adopted by the Federal Reserve affecting overdraft transactions goes into effect this summer.

Starting July 1 for new accounts and Aug. 15 for existing accounts, banks will no longer be able to automatically enroll customers into their standard overdraft protection programs. Consumers will now have to opt in to standard overdraft plans in order to have their debit card transactions and ATM withdrawals paid when there is not enough money in the account.

Checks and ACH transfers, or bill pay, will be unaffected.

Legislation is currently under way that would require the Federal Reserve to ensure that the debit interchange fees paid by merchants to Visa, MasterCard and banks with more than $10 billion in assets, are "reasonable and proportional to the processing costs incurred," according to the Durbin Amendment No. 3989.

"So where is the first place the bank is going to look to recoup that lost revenue? It will be a free checking account that had been previously paid for by those two revenue streams," McBride says.

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