Interest account carries a hefty price

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Interest checking

As usual, you’ll pay a hefty price for maintaining an interest-bearing checking account. These accounts traditionally have high minimum balance requirements and will assess a significant monthly service charge in the event the balance slips below the line. What you get for this less-than-practical account is a miserable average yield of 0.12 percent, down from 0.24 percent in 2008.

The average monthly service charge set a new record high of $12.55. That’s up nearly 5 percent from last year. If you’d like to avoid that fee, you’ll need to maintain an average balance of $3,372.18. That’s actually 2.6 percent less than last year’s minimum of $3,461.84. Don’t count on this being a consumer-friendly change. The long-term trend is upward, as increases in balance requirements generally outnumber decreases.

The average minimum deposit required to open one of these accounts is $473.12.

Average minimum to open and earn interest grows

Noninterest checking

If you can forgo the whopping interest on an interest-bearing checking account, you’ll be in the ballpark for a free checking account — one with no minimum balance requirement and no per-item fees. This year, 76 percent of noninterest accounts qualify as free accounts, up from 73 percent last year.

But the noninterest accounts that have minimum balance requirements are still a far better deal than the accounts that pay interest. The average minimum balance required to avoid a monthly service fee is $185.75. If you fail to meet that balance, the average fee is $1.77.

The average minimum deposit required to open one of these accounts is $68.32.

Watch a video on why an interest account may not be worth your money.

Free checking accounts have been a long-time favorite of Bankrate. They give the consumer access to much-needed services for almost nothing. You are giving up something because your money is on loan to the bank for free — which is why it’s smart to not keep a lot of excess cash in it.

But a recent article in American Banker points out that overdraft fees have heavily subsidized free checking accounts. As Congress and the Federal Reserve impose regulations limiting one source of fee income, banks are forced to look elsewhere. One option could be to charge a monthly fee on all checking accounts. Or, banks could impose monthly requirements such as direct deposit, use of bill pay or multiple usage of a debit card. Other alternatives could make free checking available to people who have multiple relationships with the bank.

From a competitive standpoint, some banks may choose to bite the bullet and maintain a free checking account, but consumers should probably be prepared for changes in the checking account landscape.

Most consumers can avoid the fees we’ve addressed in this report with just a little bit of effort. Read the Bankrate feature “6 tips to avoid checking account fees” and start saving money.

Average minimum to open (noninterest) is lower

Methodology surveyed the five largest banks and the five largest thrifts, based on deposits, in the top 25 metropolitan markets across the country. We looked at one interest and one noninterest checking account from each institution where available. In all, there were 245 interest accounts and 228 noninterest accounts from 248 institutions. In addition, 16 interest accounts and five noninterest accounts were surveyed from 17 online banks. The surveys were conducted during August 2009.

Check out the results of our 2009 Checking Study for more information.