Full page magazine ad for Golden 1 with the headline, “The Power of Freedom.” Copy goes on to read, “Open a Golden1 Freedom Checking Account and get an ATM/Check Card.” Bottom right copy of ad reads, “You have places to go and so much to do. You can carry cash but it’s easier and more convenient to use a debit card. So, we’ve created a new account especially for young adults ages 16 and 17 who maintain a B grade average or higher. Golden 1 Freedom Checking can help you manage your own money.”
It’s important to distinguish between online-only banks that offer a free checking account and being able to apply for a free checking account online.
This brief article will cover the internet-only banks offering free checking online.
At this time of publication, your author is aware of only six U.S. banks that qualify as online-only banks. They are:
- USAA Savings Bank
- E*Trade Bank
- Redneck Bank
- ING Direct
- Ally Bank
- Charles Schwab
A case can be made that ING Direct is no longer an online-only bank as it operates a few brick and mortar branches across the country. But for a majority of Americans, ING Direct remains basically an online-only bank.
What’s most unusual about this list of six banks is that only two of the six banks named their free checking account “Free Checking.”
Free Checking Online
Perhaps the most unusual online-only bank is the Redneck Bank located at www.redneckbank.com. It’s free checking account is named “flat out free™ checking.” If you’ve never visited this online bank’s website, you are in for a treat. It’s unlike any consumer bank you’ve ever encountered.
USAA Savings Bank named its free checking account Free Checking. Why not? It’s free of a minimum balance requirement and free of a monthly service fee. It’s honestly free checking.
The marketing folks at E*Trade Bank named its free checking account E*Trade Checking Account. It’s not a very original or descriptive name for a free checking account. Yet, this account has no minimum balance requirement and no monthly service fee. So it qualifies as free checking.
ING Direct named its free checking account Electric Orange Checking while the marketing folks at Ally Bank named their free checking account Interest Checking.
While Charles Schwab offers a free checking account, it isn’t called free checking. And, it is extremely difficult to locate it on the website. First, you won’t find it by going to the Schwab Bank website. You have to search the schwab.com investment site. And even on this site, it’s not easy to find. Once you do locate the appropriate landing page, you’ll find copy advising you that free checking at Schwab comes with a Schwab One Brokerage Account. Therefore, Charles Schwab isn’t the best choice if you are seeking a standalone free checking account.
Most online-only banks can offer free checking – even though they may not call their accounts free checking – because they don’t have expensive brick and mortar branch networks. Such branch networks are extremely costly and these costs are generally allocated to the banks’ checking accounts. Today, allocating branch costs to checking accounts seems like an irony given that the banks have been driving checking customers from the branches since the first ATM was installed at Chemical Bank in 1968.
If you are seeking a free checking account from an online-only bank, just make sure you do your research to verify that the checking account is free if you don’t find an account named free checking in the bank’s product menu. To ensure a checking account is free, you must make sure it is…
…free of a minimum monthly balance requirement and,
…free of a monthly service charge or fee.
Some banks claim to offer free checking if you agree to direct deposit. If you are able to arrange a direct deposit then for you, the account will be free checking. But, there are millions of Americans who do not qualify for a direct deposit from their employer or from the government (e.g. social security payments or similar payments).
If you are aware of any other online-only bank or credit union that offers free checking, be sure to send us an email with the information so we can add it to our list. You can contact us via the link at the top of the home page or any landing page.
Attention financial writers – many of the articles over the past year about the pending death of free checking are based on erroneous information.
One of our goals with this site dedicated to the free checking account is to provide the truth about free checking. As a financial writer we trust you’ll visit this site when writing any articles about free checking or when free checking is mentioned. Should you have an inquiry that cannot be answered by one of the many articles on this site, please contact us immediately and we’ll provide the information to the extent possible.
As for information we’ve encountered in recent free checking articles, here are some examples of information that is wrong or misleading:
- The free checking account is on its way out, it’s dead.
- The free checking account was created or started by a major bank in Minnesota.
- The free checking account is unprofitable.
- The mega-banks have been offering free checking for years.
- Free checking was started by the big banks.
- Free checking attracts only the lower income consumer who keeps a low balance.
- Banks can’t survive if they continue offering free checking.
- Banks have to drop free checking because of loss of overdraft fee income, a reduction in debit card interchange fees, and predicted high compliance costs as a result of the Dodd-Frank legislation.
None of the information above is even remotely correct and should not be used when writing articles and blogs about the free checking account.
Free Checking is Alive and Well
About the only banks dropping free checking are the four mega-banks – Wells Fargo, Bank of America, Chase, and Citibank. Unfortunately, because of their combined market share and nationwide coverage, their actions dominate the media. Occasionally, another smaller bank will follow along because of the lemming instinct – if the big banks are dropping free checking, it must be the right course of action.
What isn’t being reported in the media are the thousands of smaller community banks and credit unions still offering free checking. Most of institutions have no plans to drop free checking – especially now. They now have a stronger competitive advantage over the mega-banks operating in their market areas.
The Free Checking movement was launched in 1982 in Lincoln, Nebraska
Free checking as we know it today started in Lincoln, Nebraska in 1982, with the launch of the Totally Free Checking and Free Gift marketing program. It was not a bank or credit union that created this unique account or marketing program – it was a direct mail vendor that specialized in marketing campaigns for small banks. So, in effect, free checking had its origins at hundreds of small, community banks across America.
It wasn’t until the late 1990s that the four mega-banks and other large banks began offering free checking. And they did so strictly as a competitive or defensive move. They were among the last banks to offer free checking and first banks to drop it.
The Free Checking Account is Profitable
Free checking is profitable for the thousands of community banks and credit unions that continue offering it. There are two primary reasons for this:
- They don’t have the prohibitively expensive branch networks like the mega-banks with their thousands of branches spread across America. The reason free checking isn’t profitable for the big banks is that they allocate these massive branch costs to their checking accounts using the overhead allocation model. In reality, these mega-banks shouldn’t be allocating much, if any, branch costs to their checking accounts. Why? Since the first ATM was deployed in 1969 at Chemical Bank, the big banks have been employing a combination of new technology and punitive pricing (charging customers to use the branch to make a deposit) to keep checking customers out of the branches. The Internet has made visiting the branch obsolete for most checking customers. So, if checking customers are no longer using branches, why should their accounts absorb the overhead costs for them? These fixed costs should be allocated only to the accounts still requiring branches – like CD’s, safe deposit boxes, loans, and investment services.
- By using a different cost allocation model, smaller community banks and credit unions look at adding new checking accounts from a marginal cost perspective – not the “all in cost” perspective of the big banks. Since almost all community banks and credit unions have unused branch capacity and small branch networks, their fixed costs are basically static. So, the revenue from a new free checking account needs only be sufficient to cover variable costs. Any excess revenue can then be applied to the fixed cost base – thereby driving down the fixed cost of all accounts. On the other hand, like the mega-banks, these smaller banks and credit unions shouldn’t be allocating costs to checking accounts when so few checking customers use branches to transact business.
Free checking accounts have been profitable for the community banks and credit unions since they began offering this account in the early 1980s – long before today’s high overdraft fees and lucrative debit card interchange fees. So, it’s disingenuous for today’s mega-banks to claim that recent government meddling in the pricing of overdrafts and interchange fee amounts has made free checking all of a sudden unprofitable.
Remember, the mega-banks didn’t begin offering free checking until they realized the account was wildly popular – even among the wealthy – and wasn’t going away. But, with the recent federal legislation, these big banks saw an opportunity to launch a campaign about free checking profitability in the hopes of forcing the smaller banks to drop this competitive account.
“Free checking is unprofitable and will soon be dead,” is the perfect media story to achieve the mega-banks’ ultimate goal of killing the free checking account. If they can’t have it – they don’t want their competitors having it either. And the mass media had bought into this “big lie” hook, line, and sinker.
The Mega-Banks were the Last to Offer Free Checking
As stated above, the community banks across America were the first banks targeted for the Free Checking and Free Gift program introduced in Lincoln, Nebraska, in 1982. Free checking got a major boost by Washington Mutual (WaMu) when it began its massive expansion program in the Pacific Northwest during the 1990s and into the new century – ultimately expanding to other states around the country. WaMu’s primary marketing focus was on its free checking account. It basically owned the free checking market in the communities it served.
It wasn’t until the late 1990s that the mega-banks reluctantly added free checking to their checking product line. And then, they did very little marketing of the account. Perhaps the most aggressive free checking marketer was Bank of America with its online banner ads. Adding free checking was primarily a defensive move to protect themselves from the aggressive free checking marketing conducted by the community banks and credit unions in all markets where the mega-banks had branches.
We saw how quickly senior management at Chase Bank dropped WaMu’s free checking account shortly after acquiring the bank as a result of the near collapse of our economy. This was done after first promising these customers that Chase would retain free checking.
Blaming this move on recent government legislation is simply a classic example of employing a red herring.
The Truth About Free Checking Can Be Found Here
In the future, should you be writing a blog or media story about free checking, you should consider interviewing senior management and marketing people working for one of the many community banks and credit unions offering the free checking account. They can tell you the true story about free checking and why it is so important for their success.
In addition, you should definitely contact one or both of the financial services vendors specializing in free checking marketing programs. Both are headquartered in Lincoln, Nebraska. One is ACTON Marketing and the other is Haberfeld Associates. Both have been in the free checking business since the early 1980s. They are the true experts when it comes to free checking profitability.
The fear in shifting away from free checking, of course, is that customers will walk out the door. What reasonable consumer would want to suddenly pay for something that they’ve become accustomed to getting for free? This fear is not completely unfounded, as consumers repeatedly tell us that they really, really like their free checking accounts (to use a technical research term). In RFG’s latest round of national consumer surveys, we asked consumers to indicate what factors might cause them to switch to another financial institution. The number one reason cited by consumers was a change in free checking. Forget about deposit rates, loan rates, NSF fees, online banking, ATM or branch locations. Consumers indicated that they don’t care about those things nearly as much as they value their free checking accounts. More precisely, 39 percent of consumers indicated that they would switch financial institutions if you messed with their free checking. Granted, it is one thing to check a box on a survey and an entirely different thing to actually move an account, but the results clearly show the value that consumers place on free checking. In this era of consumerism and anti-bank sentiment, it may be a risky endeavor to test their fortitude.
Based on what I’ve read so far, it’s quasi-free checking, almost-free checking, or possibly-free checking. It depends on how you use the account.
BofA’s stated goal here is to offer an account that is free to those consumers willing to accept online statements and avoid going into a branch for deposits or withdrawals.Account holders wishing to avoid the $8.95 monthly fee must be diligent about using ATMs.
But here’s the confusing part – these eBanking checking account customers can go into the branch fee-free should they have a problem with their account, a service issue, or need to surrender a big jar of accumulated coins.
So, do the folks at BofA really want these checking customers to stop using the branch or not? If you’re already in there lodging a complaint or surrendering coins, it seems odd that you’d then have to walk outside to make a deposit at the ATM to avoid getting “zapped” for $8.95.