The Departure of Fee Free Banking
Have you noticed that it's becoming much harder to find a
financial institutions that provides free checking? For
quite some time, it was the norm for banks and credit unions
to offer the majority of their costumers with checking
accounts that had no fees. But changes to rules and
regulations in the banking industry have caused a gradual
decline of free checking in the United States.
Free checking accounts typically have no monthly fees and no
minimum balances. However it costs money for a bank to
sustain a checking account, up to $250 to $300 annually. If
your account is failing to generate that much revenue, then
your bank could be losing money.
An annual study carried out by BankRate.com indicates an 11%
drop in free checking accounts between 2009 and 2010. In
2009, 76% of accounts had no service charges or minimum
balance requirements. In 2010, the number was down to 65%,
and you can expect that trend to continue.
The drop represents a complete turnaround in the way things
had been heading. Since 2003, the percent of free checking
accounts had been steadily rising but the picture changed
when banks were forced to adjust to new reforms.
Two major changes concerning how the banking industry is
regulated are the main reasons for the sudden change.
Optional Overdraft Protection
Arguably the most substantial issue for the financial
industry was the Federal Reserve's rule that banks must
give people the option of declining overdraft protection
for everyday debit card purchases. This new regulation
applied to only debit cards and not personal checks.
However, revenue gained from debit overdraft fees was very
substantial. It's been reported that banks took in more
than $37 billion in overdraft fees in 2009 - more than 50%
came from debit and ATM transactions. The new rule allowing
people to opt out of overdraft protection means their cards
will simply be denied if they have insufficient funds. But
it also means banks will lose a large portion of the fees
they had been collecting.
The money collected from overdraft charges helps finance
features like free checking accounts. Without that revenue,
banks are forced to devise a new way to make that money.
Traditionally, banks have made money by investing your money
in other places. But with interest rates hitting rock
bottom, the money you put in your accounts is less
Regulating Interchange Fees
Yet another source of profits for financial institutions is
Banks and credit card companies like Visa and MasterCard
charge merchants like gas stations, grocery stores, and
others a percentage of the purchase every time a person
uses their debit card. This does not happen if a customer
chooses to write checks instead.
But a new provision in the Dodd-Frank Wall Street Reform and
Consumer Protection Act known as the Durbin Amendment could
change all of that. Senator Dick Durbin of Illinois said he
feels the move could boost the U.S. economy.
"By requiring debit card fees to be reasonable, and by
cleaning up Visa's and MasterCard's worst abuses, small
businesses and their customers will be able to keep more of
their own money. Making sure small businesses can grow and
prosper is vital to putting our country back on solid
economic footing," the Democrat said in a statement release
in May 2010.
The measure gives the Federal Reserve the power to manage
interchange fees. But first, a study will be performed to
determine what it really costs to process and clear debit
The amendment is mainly intended for major banks with more
than $10 billion in assets, so smaller local banks and
credit unions could keep on charging the same for
There have been lawsuits filed challenging the
constitutionality of the Durbin Amendment. However, banks
are already bracing for the impact of the new reforms. That
is precisely why the number of free checking accounts is
falling and consumers are noticing higher fees and new fees
from their banks.
What Can You Do?
At this point, you still have choices when it comes to
choosing where you bank. The truth is, the majority of
checking accounts (65%) still have no monthly service fees
and minimum balances.
If you notice your bank starting to charge fees that weren't
on your monthly statement before, start by asking about
other kinds of accounts that might be available. You could
even be eligible for fee waivers if you meet certain
requirements, such as setting up a direct deposit.
If you are unable to avoid service fees at your current
bank, you should be able to find a different financial
institution that provides a better deal. So why not take
your business elsewhere?
Don't forget, Remember, you can avoid the extra money your
bank charges you to reorder checks when you choose to order
About the Author:
Kasey Steinbrinck has written in the television radio and
newspaper industries. He now creates web content for Check
Advantage, which offers personal checks and business checks
directly to consumers. Visit www.checkadvantage.com/