Free checking accounts on the rise
By Laura Bruce • Bankrate.com

A free checking account is probably one of the best deals you can get from a financial institution. Fortunately, the number of free checking accounts is growing, although it's still a fairly small percentage of overall accounts.

Bankrate.com's Fall 2002 Checking Study evaluated 1,232 checking accounts offered by 350 financial institutions in the nation's 35 biggest metropolitan areas.

Of those accounts, 127 (10.3 percent) are free. That's up from 110 accounts in the spring 2002 study and up from just 96 accounts a year before that.

"Free checking accounts are definitely geared toward getting the customer in the door," says Bankrate.com financial analyst Greg McBride. "Banks can then cross-sell the customer other products and services that are linked to that checking account to solidify the relationship."

Fifteen of the 127 accounts we identified are interest bearing, up from 12 last spring. Most of the interest accounts offer between 0.10 percent and 1 percent. But one account, Premier Checking at La Jolla Bank in San Diego, offers 2 percent.

Free checking defined
Bankrate.com's definition of a free checking account is no monthly service charges or per-item fees regardless of balance or activity. An example of a per-item fee would be a charge for writing a check. Most institutions that impose such charges allow a customer to write a certain number of free checks each month before the fee kicks in.

Free checking can mean different things to different institutions -- and consumers. Bank of America considers its "My Access" a free checking account, but we don't because there's a monthly maintenance fee unless you have a payroll, pension or government check direct-deposited each month. Also, since the account is geared for people who like to do their banking online, by ATM or by phone, access to teller transactions are limited.

But if that type of arrangement works for you, then the My Access account can, indeed, be free.

Many of the institutions require something as simple as direct deposit to make an account free. Most free accounts don't return checks. One account, Connections Checking at Commerce bank in St. Louis, requires customers to apply for a Visa credit card but says there's no obligation to keep the card.

"A Visa card is a very profitable product for the bank. Even if half the people don't keep the card, they'll clean up on the other half that do," McBride says.

Very few of the accounts charge a fee for visiting a teller. The ones that do generally charge $1.50, but two accounts charge $3 per teller visit. Some banks allow three or four visits before a fee is charged.

For the most part, free checking accounts have been the domain of small and regional banks. But Washington Mutual has been offering one since the mid '90s and says it's been very good for business.

The minimum balance to open the account is just $1. There is no requirement to have direct deposit, no fee for a debit card, and it doesn't cost a dime to talk with a teller or customer service rep.

"We see this as a great way to differentiate ourselves from our competitors. We know people don't want to be nickeled and dimed by a bank and we structure our fees accordingly," says spokeswoman Sheri Pollock. "Free checking is a great way to build relationships with customers, show them who we are and what we stand for."

Bankrate.com has created a chart listing the 127 checking accounts in our survey that qualified as free by our definition. If your definition is broader, you'll find a lot more checking accounts that can be considered free -- probably some in your own neighborhood.

-- Posted: Nov. 5, 2002