The Elimination of Free Checking, Banking’s Newest Trend

by matt

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The free checking account is something that’s essentially on life support; however, they’re still breathing. Although the long-term prognosis is rather bleak, you’re still able to find a free checking account if you’re willing to look. You’re going to want to compare the new restrictions and the potential fees in your mind for all CD rates, savings accounts, money market accounts and checking accounts.

Banks Are Being Cautious

A lot of banks, specifically some of the larger institutions, have the appearance of being fee “junkies”. Although those banks are determined to continue adding to their bottom line through a seemingly never ending charge structure for all types of reasons, banks are also very concerned about customer perceptions, both current and prospective. Successfully branding yourself as a company is critical, and it’s especially true to the financial institutions due to all of the limits and regulations with bank rates and their respective menus of offered products.

For instance, a bank can increase their loan volume through the lowering of interest rates, and then procure funds through the increasing of savings rates, however, neither of these options will build customer loyalty or help with net profits.

All of the banks and the credit unions are spending a lot of time and a lot of money toward attempts at increasing their brands value, which, over time, will increase loyalty and trust from their customer base. When making bank comparisons you should be comparing their reputations just as you would their savings rates. You should factor that in and then determine the bank that’s going to be the best for you.

Although a lot of the major banks (e.g., Wells Fargo, HSBC, Bank of American, Wachovia, etc…) already have given the indication of the elimination of free checking from their services menu, a lot of the other banking institutions are approaching this subject with caution. There is only one national bank that’s actually made the definitive statement that they’ll be keeping free checking, and that’s ING Direct. This is something that could influence you when you’re making bank rate comparisons.

Most of what you’ll find is banks issuing very vague statements when it comes to their future actions. Statements like, “We don’t have any firm plans at the present time to eliminate free checking accounts.” In fact, it seems as if this is the collective chant. Many of the banks are waiting to evaluate the true depth of the adverse effects on their gross revenues from new fee exclusions.

When you’re making your checking and savings account comparisons, make sure you’re doing so with a full and complete understanding of their future terms and conditions, as well.

Changes in Debit Card Overdraft Fees

Regulatory changes have put restrictions on the permissible fees which lead to a projection of the elimination of the ever popular free checking account in the future. The elimination of some of the common charges, such as, the completely outrageous overdraft fee (which is typically in the $25-$40 range for each and every overdraft) on debit cards, is going to deeply cut into banks gross income. As of August 15th of 2010 those fees for the majority of account holders disappeared.

Make no assumptions though. Comparisons of checking and savings accounts need to include an evaluation of fees along with the terms and rates. For instance, when you’re making comparisons of money market rates, you should look for new restrictions and/or fees. Additionally, when you’re using the internet to compare checking account or savings rate offerings, you should ensure you’re obtaining a summary of the restrictions and fees.

We’ve all heard the horror story about the $40 cup of coffee. (Cost $5 for the delightful cappuccino and then $35 of an overdraft fee on your debit card.) For the majority of us, that horror story will no longer exist. If you find yourself in the 10-15% of the population who still overdraws their debit card on a habitual basis, you can still opt in for this “protection”.

If you want to continue the risk of incurring these fees in order to ensure that your debit card doesn’t get rejected when you’re checking out, you can request that your bank keeps this feature on, and to charge you for it.

Potential New Restrictions and Fees

Banks are making the consideration toward reinstating some of the former common charges, such as, the account “maintenance” fee. For many years, it was these fees that were imposed on all checking accounts and usually trended in the $5-$15 per month range. Historically, the consumer would avoid this fee through keeping a minimum monthly balance in their accounts. Expect these fees to return in the not so distant future.

Another probable approach is the institution of certain restrictions, which would also carry noncompliance feeds. For instance, the limitation of debit card transactions allowed, deposits made or checks written. All of those could be new “features” soon. If you exceeded the restrictions placed on your account, you’d then pay for the “privilege” of managing your account as you deem fit.

Most of the people that are currently enjoying free checking should most likely be able to enjoy their current terms into the future. Banks are going to be very careful to avoid any further adverse P.R. Those that are opening accounts might very well face some surprises of an unwelcome nature.

At the current time, banks are very carefully constructing “hybrid’ checking accounts. For instance, TD Bank offers their customers first year free checking. After the honeymoon ends, they will charge a $15 monthly maintenance fee should your balance fall below the $100 monthly minimum at any time during the month. Chase will charge a similar fee of $6.

The restrictions placed on these “hybrid” accounts should be pretty easy to meet, and the customer that pays attention is still going to find a free checking account experience. Of course, more changes are going to come in the future. Until the banks completely learn how changes in regulations and the prohibitions are going to affect their revenues, most institutions are going to keep their operative strategy as one of caution. They’ll be looking to replace their lost income as painlessly as possible, for both them, and you.

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