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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 profitable.

Regulating Interchange Fees

Yet another source of profits for financial institutions is interchange fees.

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 transactions.

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 interchange fees.

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 checks online.

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/ today.

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