In many cases, checking accounts with high balances are still free. But banks are giving up free checking for low-balance accounts because they have little chance of making money off these customers with high-revenue loans, says Reid Mack, managing director of Jackson Witter & Associates, a banking analysis and consulting firm in Miami.
"The answer for customers in need of low-balance, free-checking accounts is to move to a specialty bank that is willing to take on higher-risk lending by offering very high rates to offset the risk," Mack says. "(These banks) offer credit card and car loan rates in the 12 percent to 30 percent range."
At a specialty bank, the primary goal of the bank's charter is narrowly focused. For example, Ally Financial, formerly GMAC, has a goal of supporting the auto industry, so much of the profits from Ally Bank come from car-loan financing.
CapitalOne, one of the largest issuers of credit cards, makes up for lost fees in free checking accounts with the high return rates from its credit card operation, Mack says. And insurance companies like Allstate, State Farm and Nationwide, which primarily exist to sell insurance, attract customers to their specialty banks with free checking.