Your free checking account is at risk. Financial institutions that once offered these perks for customers are beginning to shutter the practice and charge fees for even the most basic of banking services. With the financial crisis of 2007 hammering banks and increased regulations in the industry hampering their revenue streams, banks are readjusting their strategies and free checking accounts may soon come to an end.
Checking accounts have not always been free, however. The concept has been around only since the 1990s, but quickly became widely popular account option for most people. Even so, that isn’t to say all banks with free checking accounts are going the way of the dinosaur. If you do happen to be one of the unlucky people losing their banking perks, should you immediately begin shopping for a new checking account?
Why Free Checking Accounts Going Away
While most banks will have you believe that they’re forced to charge higher fees because of economic challenges and increased financial regulations, the situation isn’t necessarily as dire as it sounds. Banks have been consistently posting better-than-expected profits over the past few quarters, despite crying poverty to their customers.
That being said, most financial institutions are bracing themselves for a potential fallout in case the economic recovery effort experiences a setback or the mortgage crisis gets worse. So even if your bank is taking away your free checking, it isn’t necessarily permanent because, quite frankly, it isn’t necessarily necessary.
Should All Checking Accounts Be Free?
Free checking accounts are popular because they’re a convenient way to bank. For financial institutions, on the other hand, they’re a marketing gimmick to get customers in the door. Currently, banks can make their money on the interest gained from loaning your money out or by charging you fees for things like overdrawing on your balance–which is a huge cash cow, by the way.
But since industry reform is tightening certain banking practices and low balance accounts don’t generate enough revenue to warrant the processing fees, some major banks are requiring customers meet certain criteria to qualify for free checking. Things like minimum balances, direct deposit transfers and minimum number of debit card charges are becoming the norm.
Free Checking Accounts that Are Here to Stay
While not all free checking accounts are here to stay, there are still some that probably won’t be going anywhere any time soon. Here are a few examples:
- Free Online Checking Accounts: A nice compromise that most banks are providing is allowing customers to bank online for free. It saves the institution in processing costs and gives the customer a free option. However, online accounts usually don’t provide paper statements or personal assistance at branches.
- Free Business Checking Accounts: These accounts are appealing to banks because they usually have higher balances anyway and customers usually have a higher level of activity than those with individual accounts.
- Free Student Checking Accounts: For many teenagers, going to college also means opening their first bank account. Banks want their business because it represents the potential to attract long-term clients and an opportunity to sell them other services like student loans or credit cards.
- Local Banks and Credit Unions: While large banks may find it no longer financially feasible to offer free checking, these scrappy competitors on a local level can use that to their advantage. In addition, credit unions are “not-for-profit” institutions and look to pass on any savings to their members in general.
A checking account that is free is a nice benefit for banking customers, but it shouldn’t be the only feature you focus on when choosing an account. If your bank is starting to charge new fees on your account or creating new requirements for free checking eligibility, don’t jump the gun until you’ve weighed the advantages and disadvantages of staying with your bank or finding a new one. After all, saving some paper and having higher cash reserves in your account isn’t the end of the world.
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Hi there,
Although free checking accounts at many financial institutions are close to extinction, Henry is absolutely right to point out that this is not the case everywhere. Free online checking accounts may not be able to offer in-person service, but there are many advantages. Online banks don’t spend billions of dollars every year maintaining and building branches so they are able to pass these savings onto their customers in the form of rewards.
It’s possible to find an online bank that also has great customer service and a large network of fee-free ATMs on top of the cash back rewards. Check out perkstreet.com for more details.
Jenna Walker
PerkStreet Financial
Bank of the West, in Feb 2012, will begin charging $10 a month for their once free checking. Join the “Flee The West” movement. On March 1st, 2012 we all close our accounts and move to banks that offer free checking. We´ve got to stand up against these new fees or they will be come the new norm.
Sign the petition below to join the movement:
http://www.ipetitions.com/petition/i-demand-that-bank-of-the-west-keep-its-free/