Survey: Free checking accounts on the rise as total ATM fees fall

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For the sixth straight year, the percentage of free checking accounts increased in Bankrate’s 2021 checking account and ATM fee study. Free checking accounts are those that have no monthly maintenance fees or minimum balance requirements.

Choosing a free account, rather than one that charges a monthly fee, can save you money. The average monthly fee for interest checking accounts that aren’t free hit a record $16.35, according to Bankrate’s 2021 survey. The monthly fee on non-interest checking accounts, meanwhile, averaged $5.08, a seven-year low and down from a record $5.86 in 2015.

Free checking accounts, however, don’t charge monthly maintenance fees and are easy to find. Nearly half (48 percent) of non-interest checking accounts are free, Bankrate’s survey found, the highest level since 2010. Meanwhile, only 7.6 percent of the interest checking accounts are free of monthly fees.

Other fees are on the rise, too. The average fee for non-sufficient funds (NSF) — the cost of overdrawing any checking account — rose for the third straight year to a record $33.58, a 22-cent increase in the past two years.

Meanwhile, the average fee for using out-of-network ATMs fell for the fourth straight year to $1.51, a 10-year low.

Bankrate surveyed 10 banks and thrifts in each of the 25 large U.S. markets. We gathered information about both interest-bearing and non-interest-bearing checking accounts, along with details of ATM and debit card fee policies. Here are highlights from the study.

Key findings:

Interest checking accounts: Fees up, yields down

Many banks charge customers a monthly service fee when checking account balances fall below a certain amount. For checking accounts paying interest, the average minimum balance requirement to avoid a fee is usually significantly higher than the amount needed for a non-interest checking account.

Customers with interest-bearing checking accounts needed, on average, $9,896.81 to avoid monthly maintenance fees, the highest in Bankrate survey history. That amount is about 31 percent higher than last year’s average of $7,550.42, which itself was a record.

In this year’s survey, only 7.6 percent of the interest checking accounts were free.

The average monthly service fee on interest-bearing accounts increased by nearly 5.5 percent since last year’s survey. The average maintenance fee on a checking account that earns interest totaled $16.35 a month.

More than three-quarters (79 percent) of interest-earning accounts require a minimum monthly balance in one or more accounts or direct deposit in combination with a minimum balance requirement to avoid fees.

Direct deposit alone was sufficient to waive monthly service fees on 12 percent of interest checking accounts, down from 21 percent in 2020, 19 percent in 2019 and 16 percent in 2018. The average minimum opening balance for interest checking accounts fell to $505.22 in 2021 from $970.93 last year.

Non-interest checking: Highest percentage of free accounts since 2010

Among non-interest checking accounts, about half (48 percent) were considered free, up 1 percentage point from last year and the highest percentage since 2010 (48 percent).

Monthly fees on non-interest checking accounts declined to an average $5.08, falling 3.6 percent in the past year and were significantly lower than the $16.35 average for interest checking accounts.

In addition, non-interest checking accounts required only a fraction of the amount needed by interest checking accounts to waive the fee — $507 vs. $9,897. Meanwhile, direct deposit was sufficient to waive monthly fees in 41 percent of non-interest checking accounts.

The average minimum to open a non-interest checking account rose about $7 from last year to $162. But it’s still lower than the record high of $177.95 in 2015.

Free checking became widely available from about 2003 to 2009, jumping to 76 percent (2009) from 44 percent (2003), says Greg McBride, CFA, Bankrate chief financial analyst. But regulatory changes and altered economics resulting from record low interest rates caused the figure to tumble. The percentage of free checking accounts fell to 39 percent by 2012 and then hovered in the 37-42 percent range. In this year’s survey, 48 percent of non-interest checking accounts are free, the highest percentage since 2010.

ATM fees: Lowest total cost since 2016

According to Bankrate’s data, the total cost of the average out-of-network ATM withdrawal fell for the second straight year to $4.59.

Making an ATM withdrawal outside of your bank’s network usually results in two fees: a surcharge from the owner of the ATM and a fee from your own bank or credit union.

The fee which is charged by the ATM owner has increased every year, except for three (2004, 2020 and 2021) in the past 24 years.

ATM surcharges, on average, cost non-customers $3.08, the same as last year and down a penny since 2019’s record high. But the average ATM surcharge is still its second highest in the history of Bankrate’s survey. Banks also charge an average $1.51, a 10-year low, to use a competitor’s ATM. Out-of-network surcharges have decreased for four straight years.

Location is also a factor in ATM fees. Consumers in Atlanta, Phoenix, Cleveland and Detroit pay about 20-25 percent more on average for using out-of-network ATMs than those in Chicago, Seattle and Los Angeles. Atlanta had the highest average fee, $5.23, though that figure is down from $5.60 last year. ATMs in LA charged the lowest average fee, $3.90, a 27-cent drop from last year’s survey.

Highest and lowest ATM fees by metro area

Rank City Avg. total ATM fee
1 Atlanta $5.23
2 Phoenix $5.17
3 Cleveland $5.13
4 Detroit $5.12
5 Pittsburgh $5.04
6 Houston $4.95
7 Tampa $4.80
8 New York Metro $4.71
8 Washington D.C. Metro $4.71
10 Baltimore $4.69
11 Philadelphia $4.58
12 Milwaukee $4.56
13 Miami $4.51
13 Denver $4.51
15 Dallas $4.46
16 Kansas City, MO $4.42
17 St. Louis $4.39
18 San Diego $4.38
19 San Francisco $4.37
20 Boston $4.33
21 Minneapolis $4.30
22 Cincinnati $4.25
23 Chicago $4.15
24 Seattle $4.12
25 Los Angeles $3.90

Source: 2021 Bankrate checking account and ATM fee study

With so many surcharge-free options available, however, consumers can avoid these fees through large ATM networks and accounts with ATM surcharge reimbursements, though the amount refunded each month may be capped.

Overdraft charges: NSF fee hits a record high

For the third year in a row, the cost of overdrawing a checking account increased. In this year’s Bankrate study the average NSF fee was $33.58. That average was 11 cents higher than last year and rose for the 21st time in the past 23 years.

Depending on the bank or credit union you choose, you could pay more for overdrawing your account — and it’s possible to get hit with several overdraft charges in a single day.

Frustration over hefty overdraft fees has led to legal attempts to ban them in certain circumstances, and resulted in the creation of apps and banking alternatives that don’t charge customers for overdrawing their accounts.

Bankrate’s survey showed little variation in overdraft fees nationwide. Philadelphia ($35.70), Baltimore ($35.61) and Houston ($35.17) charged the most, with average overdraft fees topping $35, while Cincinnati ($30.42), Los Angeles ($31) and St. Louis ($31.60) had the lowest.

Here’s how to avoid many of these fees

Though the average total ATM fee decreased for the second straight year to $4.59, a drop of 5 cents from 2020, the better news is that ATM fees are fairly easy to avoid. Instead of withdrawing money from an out-of-network ATM, for example, you can request cash back when making a debit card purchase. And banking with a credit union, smaller bank or online bank is another option, since they tend to have a wider network of fee-free ATMs than bigger banks, McBride says.

“Despite the increasing prevalence of free out-of-network withdrawals, that’s not the only fee to worry about,” McBride says. “Every ATM owner still charges non-customers, so avoiding ATM fees still means avoiding withdrawals outside your network. Smaller banks and credit unions often participate in large ATM alliances with a nationwide network of free ATMs. While some merchants charge a fee when getting cash back on a debit card purchase, this is still the exception rather than the rule and remains a viable way to avoid higher ATM fees.”

One way to save on monthly fees is to choose a free checking account.

“Consumers can avoid balance requirements and monthly fees by looking for a free, typically non-interest account,” McBride says. “Without a balance requirement, there is no need to strand extra money in a checking account and that money can be better deployed in an online savings account. Avoid interest checking accounts, with their high balance requirements, high monthly fees and low yields averaging just 0.03 percent. Nearly 90 percent of non-interest accounts are free or can become free by signing up for direct deposit.”

The average overdraft fee ($33.58) is more than double the average monthly service fee on an interest checking account ($16.35) and about 6 ½ times more than the average monthly fee on a non-interest checking account ($5.08).

“Avoiding costly overdraft fees requires keeping close tabs on your checking account balance, and specifically the amount available for immediate withdrawal,” McBride says. “But slip-ups occur so put in a line of defense by establishing a link between your checking account and savings account at the same bank so that money is immediately transferred into the checking account to cover any shortfall. An increasing number of fintech companies and neobanks are offering accounts that do not charge overdrafts and are worth considering for those with more than the occasional overdraft.”

Methodology

The survey group consisted of 245 banks and thrifts in 25 large U.S. markets. A total of 236 interest and 236 non-interest checking accounts as well as their associated ATM and debit card fee policies were included in the survey, which was conducted July 19 to Aug. 9, 2021.

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