December 4, 2010
Keeping your checking account free is getting much tougher.
Facing new revenue-crimping regulations, big banks are whittling away at free-checking offerings and adding stricter requirements for avoiding monthly maintenance fees, from higher minimum balances to mandatory direct deposits of at least a certain amount.
The percentage of free accounts—those with no monthly fee and no minimum balance requirement—has fallen to 65% from 76% a year ago, according to a recent Bankrate.com survey of checking accounts at large banks and credit unions.
Banks are increasingly penalizing little-used checking accounts and favoring households' most-active accounts, which generate more income and have a better chance of producing more business down the road.
This summer, Wells Fargo replaced its free-checking offering with something called "Value Checking," which requires either a monthly direct deposit of $250 or more or a minimum balance of $1,500 to avoid a $5 monthly fee.
New Restrictions
Some banks are imposing other restrictions. Bank of America in August rolled out its "eBanking" checking account, which doesn't require a minimum balance, but does demand that users make deposits and withdrawals electronically and forgo paper statements to avoid an $8.95 monthly fee. And under changes made in September, Citibank's "Basic Checking" customers need to complete at least five transactions—which could include debit purchases, automated-teller-machine withdrawals, checks or direct deposits—or pay an $8 monthly fee.
Next year, bank bottom lines will be pinched again when the "interchange fees" that merchants pay for debit cards are cut, which may trigger another round of account changes. In February, for example, J.P. Morgan Chase will no longer waive its monthly Chase Checking fee if depositors make five or more debit-card purchases. Those who use direct deposit will be able to avoid the maintenance fee—but only if each deposit is at least $500.
The more-stringent rules may be costly to young people and those who manage their money carefully by keeping checking balances low so they can take advantage of higher interest rates elsewhere. Student accounts are being affected too: Wells Fargo's college account charges a $3 monthly fee unless students have at least $500 in their accounts or a monthly direct deposit of at least $25. (No, transfers from Mom and Dad don't count.)
The new restrictions reflect regulatory changes that are cutting into bank profits. Since last summer, banks can no longer automatically put through overdrafts on ATM withdrawals and debit-card purchases, which generated huge fees. Instead, consumers must formally agree to pay overdraft fees, or see their transactions declined.
Some 55% of bank checking-account revenue has come from interest income, mostly on accounts of $3,000 or larger, and the rest from fees, led by overdraft fees, according to Celent, a financial-services research and consulting firm. In a presentation to analysts last month, Chase said its net income from retail banking fell 19% in the third quarter compared with a year ago, following the overdraft rules.
A Jump in ATM Fees
To make up for falling overdraft revenue, banks are hiking other fees. Bankrate's survey found the average ATM fee jumped 5%, to $2.33, before your bank charges you for going out of network. The average overdraft fee grew 3%, to $30.47; and the average monthly fee on interest-bearing accounts was up 3%, to $13.04, if the balance didn't meet a minimum requirement, which is often $10,000 or more.
With more options and so much turmoil in the banking business, this is a good time to reevaluate the cost of your accounts and your own needs.
If you want a no-hassle, low-cost checking account, consider shopping for one at a regional bank, credit union or online. SunTrust Banks, Navy Federal Credit Union and Charles Schwab are among many firms still offering free-checking accounts with no minimum balance.
In most cases, credit unions and online accounts have resolved their biggest drawbacks—ATM use and paper deposits. Typically, even online checking accounts allow you to use a nationwide network of ATMs without charge or reimburse you for ATM fees. And while you may still have to mail in paper deposits now, before long, you will be able to scan them at your desk or send images in from your phone.
If changing banks is too difficult, you also can switch to a different offering at your current bank. Make sure all your family accounts are linked, so that you get credit for deposits, investments or loans with the same institution.
Just as you do with airline frequent-flier programs, you should expect more from a bank that you do a lot of business with. Good customers should qualify for perks, such as better rates on car loans or a home-equity line of credit or higher certificate of deposit and savings rates.
Keeping your checking account free is getting much tougher.
Facing new revenue-crimping regulations, big banks are whittling away at free-checking offerings and adding stricter requirements for avoiding monthly maintenance fees, from higher minimum balances to mandatory direct deposits of at least a certain amount.
The percentage of free accounts—those with no monthly fee and no minimum balance requirement—has fallen to 65% from 76% a year ago, according to a recent Bankrate.com survey of checking accounts at large banks and credit unions.
Banks are increasingly penalizing little-used checking accounts and favoring households' most-active accounts, which generate more income and have a better chance of producing more business down the road.
This summer, Wells Fargo replaced its free-checking offering with something called "Value Checking," which requires either a monthly direct deposit of $250 or more or a minimum balance of $1,500 to avoid a $5 monthly fee.
New Restrictions
Some banks are imposing other restrictions. Bank of America in August rolled out its "eBanking" checking account, which doesn't require a minimum balance, but does demand that users make deposits and withdrawals electronically and forgo paper statements to avoid an $8.95 monthly fee. And under changes made in September, Citibank's "Basic Checking" customers need to complete at least five transactions—which could include debit purchases, automated-teller-machine withdrawals, checks or direct deposits—or pay an $8 monthly fee.
Next year, bank bottom lines will be pinched again when the "interchange fees" that merchants pay for debit cards are cut, which may trigger another round of account changes. In February, for example, J.P. Morgan Chase will no longer waive its monthly Chase Checking fee if depositors make five or more debit-card purchases. Those who use direct deposit will be able to avoid the maintenance fee—but only if each deposit is at least $500.
The more-stringent rules may be costly to young people and those who manage their money carefully by keeping checking balances low so they can take advantage of higher interest rates elsewhere. Student accounts are being affected too: Wells Fargo's college account charges a $3 monthly fee unless students have at least $500 in their accounts or a monthly direct deposit of at least $25. (No, transfers from Mom and Dad don't count.)
The new restrictions reflect regulatory changes that are cutting into bank profits. Since last summer, banks can no longer automatically put through overdrafts on ATM withdrawals and debit-card purchases, which generated huge fees. Instead, consumers must formally agree to pay overdraft fees, or see their transactions declined.
Some 55% of bank checking-account revenue has come from interest income, mostly on accounts of $3,000 or larger, and the rest from fees, led by overdraft fees, according to Celent, a financial-services research and consulting firm. In a presentation to analysts last month, Chase said its net income from retail banking fell 19% in the third quarter compared with a year ago, following the overdraft rules.
A Jump in ATM Fees
To make up for falling overdraft revenue, banks are hiking other fees. Bankrate's survey found the average ATM fee jumped 5%, to $2.33, before your bank charges you for going out of network. The average overdraft fee grew 3%, to $30.47; and the average monthly fee on interest-bearing accounts was up 3%, to $13.04, if the balance didn't meet a minimum requirement, which is often $10,000 or more.
With more options and so much turmoil in the banking business, this is a good time to reevaluate the cost of your accounts and your own needs.
If you want a no-hassle, low-cost checking account, consider shopping for one at a regional bank, credit union or online. SunTrust Banks, Navy Federal Credit Union and Charles Schwab are among many firms still offering free-checking accounts with no minimum balance.
In most cases, credit unions and online accounts have resolved their biggest drawbacks—ATM use and paper deposits. Typically, even online checking accounts allow you to use a nationwide network of ATMs without charge or reimburse you for ATM fees. And while you may still have to mail in paper deposits now, before long, you will be able to scan them at your desk or send images in from your phone.
If changing banks is too difficult, you also can switch to a different offering at your current bank. Make sure all your family accounts are linked, so that you get credit for deposits, investments or loans with the same institution.
Just as you do with airline frequent-flier programs, you should expect more from a bank that you do a lot of business with. Good customers should qualify for perks, such as better rates on car loans or a home-equity line of credit or higher certificate of deposit and savings rates.
Closed November 2010
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