First Northern Bank, founded in 1910 in Dixon, California, continues offering Totally Free Checking to its customers in the surrounding counties which includes Sacramento. In addition to Totally Free Checking, the bank also offers 50+ Free Interest Checking (for customers age 50 and older) and Direct Deposit Free Interest Checking. These three checking accounts were originally part of the seven unique checking accounts comprising the “High Performance Checking Account Marketing Program” introduced in 1982 by a direct mail marketing agency in Lincoln, Nebraska. At the time, the direct deposit based account was introduced as VIP Interest Checking. Over the past three decades, most community banks and credit unions participating in the High Performance Checking Account Marketing Program have shortened the Totally Free Checking name to Free Checking. It’s always exciting to encounter a local community bank that continues offering Totally Free Checking, not to mention two additional accounts from the original list of seven. The ad shown below appeared in the April/May 2012 issue of the glossy Sactown magazine.
Secretary of State William F. Galvin vowed to press Bank of America and other big banks in Massachusetts to offer free checking accounts to young adults and the elderly, something most community banks already offer.
Galvin said he is seeking legislation to bar banks from holding state or local government deposits in Massachusetts unless they offer free basic checking accounts to people under 19 or 65 and older.
State-chartered banks, such as Eastern Bank and Rockland Trust, are already required to offer the accounts under legislation that Galvin co-sponsored when he served in the state legislature in the 1980s.
But the law does not apply to nationally charted banks like Bank of America, Citizens Bank, Sovereign Bank, and TD Bank. Those also happen to be the largest banks in Massachusetts as measured by deposits and branches.
Galvin, who said he has personally been frustrated with the fees Bank of America charges on his own campaign accounts, said he decided to push for legislation after reading about the bank’s plans to implement a new wave of monthly checking account fees across the country. The bank is already testing the fees in Massachusetts.
Continue reading on The Boston Globe
My friend Mike, owner of this wonderful website, is familiar with my background as a bank marketing person for well over 35 years. Over the past couple of years, he’s been on the receiving end of many a rant about free checking and the ongoing efforts by some folks to kill this highly desirable account.
A few weeks ago he asked if I’d do a mind-dump about my experiences with free checking and my thoughts about its future. So, please excuse the rambling nature of what you’re about to read below. It truly is a combination mind-dump and rant about America’s beloved free checking account.
- What is Free Checking and Where Did it Originate?
- Checking Accounts are The Last Remaining Franchise
- Today’s Great Recession Impacts Free Checking
- Fixed Costs and Price Elasticity of Demand
- Reduced Checking Fee Income Sparks War against Free Checking
- Mega-Banks Rush to Replace Free Checking
- Update Reg DD Truth in Savings
- Free Checking – Dead or Alive?
- The Ultimate Free Checking Irony
- Cutting Costs by Reducing Features and Benefits
- Bury the Bad News in Small-Type Disclosures
- Some Final Comments about Free Checking
I’ll start by setting the record straight on the origin of the free checking account. It wasn’t created by a banker. It was created in 1982 by a team of experts working at a small direct mail agency located in Lincoln, Nebraska.
It was one of seven unique checking accounts that were combined with a free gift and marketed as a complete turnkey marketing program under the name of Totally Free Checking and a Free Gift Too!
Initially sold on a territorial exclusivity basis, results from the direct mail program were beyond expectations. Over the ensuring years, more and more community banks adopted the program because of its success in generating new checking customers for program participants.
For many years, free checking accounts were offered primarily by the smaller banks and credit unions. It wasn’t until the late 1990s that the big banks finally realized that free checking wasn’t a fad and jumped onto the bandwagon. Still, most were reluctant to promote it aggressively. Offering it was more of a defensive move.
Surprisingly, after more than 28 years, there remains a gross misunderstanding about free checking today – especially among the banks and the media.
Free checking is labeled “free” for two simple reasons – one, the word “free” is the single most powerful word used in marketing and two, the account is actually free.
Consumers love acquiring something of value that’s free.
When free checking, as we know it today, was first introduced, there was some confusion over what constituted a “free” checking account. A few banks offered “free checking” but required customers to enroll in a direct deposit program to receive free checking. So, a few years later the government via Reg DD Truth is Savings came up with the requirements to be labeled free. They are:
- No minimum balance requirement
- No set monthly fee
- No excess activity fees
- No per item fees
This section of Reg DD brought marketing consistency to the free checking account.
What is important today is that these requirements are based on account attributes or features and not based on use. This will become important below.
The checking account is banks’ and credit unions’ last remaining, exclusive franchise. All other bank and credit union products are available from non-banks – including credit cards, savings accounts, mortgages, lines of credit, and auto loans. Unfortunately, I don’t feel bankers understand the importance of the checking account. They take it for granted. They believe they can simply load it with fees today and consumers won’t balk.
They simply fail to see the elephant in the room which is Walmart. Walmart has been trying since the early 1990s to get the federal government to approve its request for a consumer banking charter. It’s been fought hard by bankers. Once Walmart gets a banking charter, you can imagine it offering free or very low cost checking accounts to its huge customer base. If you don’t think so, remember that Walmart introduced $4.00 prescriptions a few years ago.
If the large banks continue jacking up the cost of checking accounts and some smaller institutions follow suit, you can be it won’t be long before Walmart enters the checking account business some way. It’s inevitable.
Another threat on the horizon is the young techies, some of whom would love to find another delivery channel for the checking account. Perhaps Jack Dorsey, co-founder of Twitter and founder of Square, and some friends are working on just such an alternative.
Unlike other bank products and services, checking accounts are not only the institution’s CORE PRODUCT, checking accounts are the stickiest account. They are tough and time-consuming to close and move elsewhere. They are the bank’s platform for cross-selling. And most important, consumers will tell you that their “primary” bank is where they have their checking account, not their mortgage or CDs or auto loan. In spite of this, most bankers fail to treat checking accounts as their last remaining, exclusive franchise.
In today’s struggling economy – which, by the way could be with us for the next 10-20 years – consumers want and need the value delivered by free checking.
Since its introduction in 1982, never has the economic conditions been more favorable for free checking.
In addition, consumers have always felt they were being ripped-off by banks and credit unions charging them for checking as they understood that they are actually loaning their financial institution money interest-free for weeks and months at a time. They know this money gets loaned out at higher rates. Therefore, consumers feel free checking is their reward for loaning banks money interest-free. They shouldn’t have to pay for a basic checking account.
Of course, this scenario has changed since the Federal Reserve lowered the Fed Funds rate to near zero a couple of years ago in an attempt to get banks to begin lending and consumers to resume borrowing. With such a low borrowing rate, banks today can just as easily borrow money from each other, or from the Federal Reserve, to fund loans. Checking account balances have lost some of their importance to the banks. Still, it’s probably a safe bet that most consumers are not aware of this. Then continue to believe they are loaning their money interest-free to the banks.
Another relevant issue with free checking is that consumer banking is largely a fixed-cost business with huge branch, systems, and people costs. Therefore, adding more checking accounts is an ideal and low-cost way of spreading fixed costs across a much larger account base. This drives down the overall cost-per-account for every bank product. Adding the next new free checking account costs the bank very little in variable costs – especially today with online statements and fewer customers visiting the branches.
In the not-to-distant future, we may see a major change in both the number of retail bank and credit union branches and their configuration in an effort to drive down costs.
Of course, all banks and credit unions today are facing increased costs to provide an array of mobile banking services to their customers.
Fixed costs aside, pricing is the major issue when it comes to consumers’ choice of a checking account.
It’s my opinion that most bankers seem to ignore the impact price elasticity has on the demand for checking accounts. I suspect that the checking account pricing curve is very elastic – this means that the higher the cost, the more likely the customer will move elsewhere for a lower cost product. The lower the cost, the more checking accounts a bank or CU will open.
And in today’s struggling economy, consumers are very price sensitive. This price elasticity is why banks or credit unions offering free checking find the majority of their customers with free checking and not some high-priced premium account loaded with unwanted features.
When a bank or credit union drops free checking, replacing it with an account with a minimum balance requirement and monthly service fee, it can expect an increase in checking account attrition.
In an attempt to mitigate this increase in attrition, the big banks and some followers have been quick to adopt what I like to call “stealth free checking accounts” which will be covered below.
Adding to the banks’ and credit unions’ woes is a spate of recent legislation aimed at reducing their revenue from checking accounts.
One major outcome of the financial crisis which began in 2008 is a government assault, fueled by growing consumer complaints, against excessive checking account fees charged by banks and credit unions.
The initial overdraft legislation was quickly followed by a dramatic reduction in the debit card interchange fee at the point of sale. Now, the new Dodd-Frank consumer financial protection bureau is taking a closer look at additional fees.
This sudden loss of lucrative fee income quickly focused the mega-banks’ attention on the free checking account – an account they were loath to provide in the first place. Remember, they were very late adopters of free checking.
Their immediate goal was to not only eliminate their own free checking accounts but to mount a campaign to eliminate it totally.
As a result, since late 2008, we’ve been treated to an array of media articles predicting the pending demise of free checking. Most of these articles are available on this website.
Eliminating free checking is not going to happen. It’s a smokescreen created with the help of a small number of third-party vendors who are banking consultants trying to sell banks on the need for the consultants’ services to revamp their product line. They originally planted these stories along with help from the mega-banks that would love to see free checking go away.
It’s in the big banks’ best interest to fuel a media campaign against free checking as they understand the threat if the nearly 14,000 smaller banks and credit unions continue offering free checking. They are simply trying to convince all bankers that it’s in their best interest to dump free checking and load their checking accounts with high fees.
Unfortunately, the media gets swept-up in this planted story. It’s like a politician or political party that plants a misleading story about the opposition in the hopes it will minimize the threat.
In the meantime, the nation’s four largest banks, Citibank, Bank of America, Chase, and Wells Fargo have dominated the financial media with stories about a variety of new fees, new checking accounts, new account market tests, and threatened changes on the way.
In the meantime, big mega-banks like Chase and Bank of America are busy revamping their checking product line in the hopes of generating greater fee income from checking accounts. The $64,000 question that’s too early to answer is, “Will it work?” Price elasticity of demand says it won’t. At the same time a bank spokesperson is busy pushing the free-checking-is-dead story line.
Here’s what Bank of America spokesperson Anne Pace was quoted as saying in October, 2010, “Customers never had free checking accounts. They always paid for it in other ways, sometimes with penalty fees.” This is blatantly not true. Yes, some customers paid penalty fees, but a large majority of free checking customers never paid any penalty fees. The operative word here is “penalty.”
So, is Bank of America really eliminating free checking?
The answer is NO WAY.
They are simply reconfiguring one or more of their checking accounts so they remain free. It’s just that with the outdated Reg DD section on advertising free checking, the bank can’t promote it as free. But to a majority of customers who open and use it, it will be free.
When they first appeared, I labeled them as “stealth free checking accounts.” The operative word here is “stealth.”
The difference today is that “free” is based on transaction behavior or usage and not strictly product attributes or features.
Bank of America’s new eBanking checking account promises no minimum balance or monthly fee as long as the customer agrees to online statements and to not go into a branch for transactions.
Remember, online statements weren’t available in the early 1980s when free checking was introduced and aggressively marketed by the smaller banks and credit unions.
We’ve learned of other large banks offering free checking if the customer agrees to use his or her debit card for a set number of transactions each month and agrees to online statements.
Paper statements are very expensive to print and mail. Moving to online statements dramatically lowers the cost of servicing a checking account.
Perhaps what is needed most is to petition the feds to revamp the Reg DD Truth in Savings regulation to create a more up-to-date list of requirements for what constitutes free checking. There’s no need to eliminate the current no minimum balance and no monthly fee requirements. Simply add the following requirements:
A checking account can be labeled and promoted as free as long as the customer agrees to:
- Accept online only statements.
- Use the account’s debit card at the point of sale a minimum (in the range of 6-12 times per month) of six times per month.
- Agree not to use the branch for deposit and withdrawal transactions.
There may be similar transactional or behavior requirements added to this list.
The idea of a free checking account should not be threatened by an outdated regulation. We can retain the use of the word “free” by simply updating the regulations to be more in tune with today’s technology made possible by the Internet.
This is what the banks – especially the big banks – should be doing instead of spending time and effort spreading stories about the demise of free checking – the most popular checking account available today.
The bottom line is this: Consumers value free checking more than any other type of checking account offered. It’s makes no sense to take it away from them just because a number of banks and credit unions are on the search to replace lost fee income from overdraft and debit card usage.
As long as there is a huge demand for free checking, there will always be some banks and credit unions finding a way to offer it to them. If not, you can count on Walmart to find a way to do so. YOU CAN BANK ON IT.
Free checking remains alive and well – primarily with the smaller community banks and credit unions that are not burdened by tremendously expensive brick and mortar branch networks.
To date we’ve witnessed a handful of bigger regional banks mimic the four mega-banks by dropping their free checking accounts but so far the smaller banks and credit unions are holding fast.
As a result of the economic crash in 2008, the free checking account has become a lightning rod for critics.
Free checking is to folks in banking what Google is to folks in the tech world. Its rampant popularity and usage has created a number of detractors and enemies who would like to see it go away.
In banking, the detractors are primarily the four big mega-banks and a few regional banks and a handful of third-party vendors specializing in bank consulting. Occasionally, someone working for one of these vendors will pen an article predicting the demise of free checking. Such stories frequently appear online. Most of them are available on this website.
The big banks would like to see free checking go away as it threatens their ability to indiscriminately increase minimum balance requirements, increase monthly fees, and add a variety of new fees on their checking accounts.
The financial services vendors are busy predicting its demise so they can convince bankers to hire them to revamp their checking product lines in a post-free checking environment. You can imagine the cost to hire such a consultant.
Now, from my perspective, here’s the ultimate irony . . .
The federal government was pushed by consumer complaints over punitive fees to enact the new CARD (credit card) legislation, the Reg E ODP opt-in legislation, and lower the debit card interchange fees. The end result is that these very same big banks are now rapidly creating new fees, increasing existing fees, and increasing minimum balance requirements to generate more fee income to offset the loss of fee income from the legislation?
Bottom line, the Fed hasn’t solved the high, abusive fee problem. They’ve simply created an environment where banks and credit unions will find other ways to generate the same amount of fees…or more. So in the end, consumers are no better off than before. It’s like the old Whack a Mole game. You pound down a fee on one account and two more pop up on another account.
You have to ask yourself, how long will it be before these same consumer groups go back to their legislators asking for new legislation to provide relief from these newer fees? It’s inevitable.
The problem is the government helped create these big mega-banks and then bailed them out as too big to fail. And now they run roughshod over the consumer market for banking products and services. It’s a sad state of affairs for the consumer.
Along with increasing and adding fees, the bigger banks have been busy looking for ways to cut costs of providing their checking accounts.
Not only are these big banks eliminating free checking and increasing fees on other checking accounts, they are looking for ways to cut costs.
Over the years, banks and credit unions have become good at adding a litany of features to their non-free checking accounts in an attempt to differentiate them from free checking while being able to charge higher monthly fees.
Some of the more pricy premium checking accounts look like Christmas trees filled with blinking lights and ornaments.
One of the last features to be added was a debit card rewards program where points are awarded for use. The goal here is to convince consumers to use their debit card as frequently as possible to earn rewards. In turn, the bank or credit union reaps huge interchange fee income.
One of the first steps taken by banks to reduce checking account costs was to dramatically revamp, or eliminate, their debit card rewards program. While these programs are created to help a bank differentiate itself in the market place, the consumer always ends up paying for the program in the first place with higher fees. So they pay higher fees on the front end and get a puny amount back in the form of a reward on the backend.
Fully-loaded, high cost checking accounts are one reason why savvy consumers prefer a no-frills free checking account.
Believe it or not, there is an upper limit on the number of relevant features you can attach to a checking account. And this number is quite low as you’ll discover below.
Years ago, in the early 1970s, my first bank marketing job was in the product development group at Continental Bank, Chicago. If you are a member of such a group, you spend most of the day sitting around trying to figure out more ways to charge customers more money for banking with you…or coming up with new accounts that cost the consumer more money.
I can only imagine being a member of a product development team in a big bank today. Your entire focus is on “let’s make a list of every possible fee we could possibly charge and see which ones we can implement. Not only that, we have to test to see the optimal fee amount where adding one more dollar to the fee will result in increased account closure.” You’re seeking the optimal point where the price and demand curves intersect.
Remember the old Bernard Baruch saying, “If all you have is a hammer, everything looks like a nail.” In effect, today if you are a product development person at a bank or credit union and your goal is to replace lost ODP and debit card interchange fee revenue, everything being discussed involves a fee of some sort.
Ideas for possible new fees include:
- Increasing monthly maintenance or account fees
- Adding new monthly maintenance fees on what was a free checking account
- Increasing minimum balance fees so the existing fee kicks in more frequently
- Adding and increasing transfer fees on linked accounts when transfers are made to cover a potential OD situation. Why is this necessary when you can go online and make transfers for free?
- Fees for getting email fraud alerts from your bank or CU
- Fees for credit reports when applying for a loan or checking your FICO score
- Increased fees for ordering paper checks
- Fees for paper statements
- HSBC now charges a $19 annual fee for a line of credit
- Inactive checking account fees
- Fees for calling customer service or visiting the branch
- Closing an account fee
- Foreign ATM use fees (example, according to MoneyRate.com this fee is up 13.8% over the January 2010 survey, going from $1.88 to $2.14 as of the July 2010 survey)
The recent attempt by Bank of America to add a $5 monthly debit card fee went down in flames – much to the delight of consumers everywhere.
Often, banks are their own worst enemies. They create a new checking account with a high minimum balance requirement and high monthly fee for falling below the minimum. To make it more attractive to consumers, they treat it like a Christmas tree, as mentioned above, by hanging all sorts of feature ornaments on it. Unfortunately, some of these features cost the bank money to provide. The problem is that over time if you take a look at feature use, you discover that very few customers are availing themselves of these features yet the bank is paying some third-party vendor for these programs. So the bank’s account costs are higher than they should be.
In my long experience, most consumers don’t want or use a majority of these bells and whistles as they are called by marketers. They are simply window-dressing.
In the 1980s, at least two studies were done, one by a major credit card company looking at the value of added features. The bottom line, the optimal number of added features is three. Anything beyond three gets lost in the customer’s mind. Yet today, we find banks lathering on the features in the hope of convincing customers that a fully-loaded account is worth the higher costs. It just isn’t true.
The proof can be found at any bank offering free checking plus an array of higher priced accounts loaded with features. Inevitably, if you look at an account frequency distribution you’ll find something like 75%-80% of the bank’s customers prefer free checking and the other 20%-25% are spread across the remaining, higher-priced accounts.
Bottom line, given a choice of types of checking accounts, the vast majority of consumers choose free checking. It’s the best value possible.
Trying to force customers to accept an account other than a free checking account is no different than trying to persuade a majority of drivers to buy a higher-priced electric car.
Another issue that most consumers find irritating is that most checking accounts come with a lengthy amount of disclosure copy. It’s in this copy where all the costs are buried.
Another issue concerns the disclosure of all these higher minimum balance requirements and new and higher fees. You can count of a majority of banks burying this information in mice-type disclosure copy at the bottom of brochures, in letters, and in newspaper ads for the new products. Not only that, it gets buried in disclosure copy on the banks’ websites. They know that most consumers don’t read this information.
Bankers and bank marketers know that most consumers don’t read the letters sent them advising them of changes in terms and conditions, including all these new balance requirements and fees. Those that do tend to scan them.
So it’s highly likely that a majority of consumers won’t really know all the details about their new checking account or their current account that has been repriced. This is the beauty of free checking, there are very few disclosures required.
Checking customers generally discover pricing issues only when the new or higher fee is assessed on a monthly statement.
This failure to disclose all this information up-front in the same size type as the marketing cop y is the main reason why a bank like Ally Bank can differentiate itself by claiming to have no hidden fees, doing away with disclosure copy, and using simple language to explain things to customers.
My bottom line as it relates to America’s favorite checking account?
Unless it is legislated out of existence, the free checking account will be with us for many years to come. Consumers will demand it and someone will make it available – even if that someone is Walmart or a group of techies writing a software program and building the infrastructure to provide an alternative to traditional banks and credit unions.
By the way, it’s my opinion that the most objective information about retail banking, including consumer behavior as it relates to banking, comes from Michael Moebs of Moebs Services. Moebs has been out in front on this free checking debate and has provided a number of articles on the topic of free checking. Most of these articles are available on this site.
One final note: The popularity of the free checking account is supported by the large assortment of free checking account names selected by banks and credit unions in an effort to differentiate their free checking account from those offered by competitors. For years I’ve been keeping a list of all the checking account names that include the word “free” in them. This exclusive list currently has in excess of 90 such unique names for the basic free checking account. Some of the names are very creative. A copy of this list is available on this website.
I appreciate your time in reading this missive about the coveted free checking account.
Ex-bank marketer, blogger, and sometime ranter
More than 4 million accounts have already moved away from the nation’s largest banks and this trend will only increase according to Moebs Services, an economic research firm in Lake Bluff, IL. Previously, large banks with over $50 billion in assets held 45% of the 130 million consumer checking accounts in 2009. That number has been decreasing dramatically with Bank of America losing 400,000 accounts in 2010 alone.
This trend will only continue, according to Michael Moebs, CEO of Moebs Services, who predicts an additional 7 to 9 million accounts moving by the end of 2011. The trend should plateau in 2012 after the nation’s largest banks see between 13 and 17 million accounts moving to local community banks and credit unions in just three short years. If Moebs’ predictions come to fruition, the largest financial firms will only hold a third of all free checking accounts in the US by the end of 2012, a huge drop from the 45% they held in 2009.
Read more: Huffington Post
Once again, a financial writer for a local newspaper fails to do his research on the future of free checking before writing his article. As you’ll see in the article below, which appears in the March 18, 2011 edition of the Sacramento Business Journal, the writer’s opening statement reads: “Once taken for granted by consumers, free checking is going away as banks try to replace income from fees they can no longer charge.” Yet, as you read the entire article, you realize free checking isn’t going away. The smaller community banks and credit unions are continuing to offer free checking to new and existing customers. In fact, in the newspaper’s home town of Sacramento, the state’s largest credit union has a major newspaper and billboard campaign promoting free checking. And, had the writer done his research, he would have discovered that the nation’s sixth largest bank, Pittsburgh-based PNC Bank, is keeping its free checking account as 75% of its checking customers have free checking. For some odd reason, a number of today’s financial writers jump into stories about the pending demise of free checking before extensively researching the subject matter in order to get the story correct. The real story is that the four mega-banks are adding fees and minimum balance requirements to their checking accounts with the end result being millions of checking customers fleeing to get free checking at the nation’s thousands of community banks and credit unions. The real story isn’t that free checking is going away. The real story is that the major banks are driving millions of checking customers away and into the lobbies of the nation’s community banks and credit unions.
Sacramento Business Journal article
Free Checking is Going Away
March 18, 2011 edition
Banks see checking accounts as new revenue source
Bigger institutions say regulations are forcing them to end free service
Mark Anderson/Staff Writer
Once taken for granted by consumers, free checking is going away as banks try to replace income from fees they can no longer charge.
National banks and community banks alike are adding – or at least considering – monthly fees on checking accounts as a way to increase revenue or encourage consumers to use inexpensive services like ATMs and electronic statements.
For years, banks attracted consumers with free checking accounts. For a bank, the checking account is the account “that defines your relationship as the primary institution with the customer,” said Henry Wirz, chief executive of SAFE Credit Union.
The checking account had nothing to do with the near-collapse of the financial system, but the broad changes to financial regulations are changing the entire landscape of the banking industry.
“Who would have thought a few years ago that complicated derivative trading on Wall Street would eventually trickle down to the checking account? But that’s pretty much what happened,” Wirz said.
The Federal Reserve last year created new rules that curbed checking overdraft fees, cutting an estimated $6 billion in fee revenue for banks and credit unions, according to Moebs Services, a Lake Bluff, Ill., financial services research company.
The income banks make from debit card interchange fees, paid by merchants, is also in question. The Durbin Amendment, signed into law in July 2010, gave the Federal Reserve power to regulate interchange fees. The law is set to be implemented this summer, which could cost banks billions more.
Some banks have raised their fees in anticipation of the interchange caps of the Durbin Amendment, but that language is still being modified.
With all that income potentially going away, banks are looking at new fees – and one of the easiest places to look is the checking account.
“The checking account creates a relationship between the bank and the account holder that often leads to other accounts, from credit cards and car loans to business products and mortgages. It is tethered to debit cards, electronic banking, mobile banking and automated bill payment.
Bank of America is testing new checking accounts in Arizona, Massachusetts and Georgia. The program will go nationwide at the end of this year or early next year.
The new accounts – and revised requirements for free checking – are at this time envisioned for new accounts only, said Don Vecchiarello, a BofA spokesman. The bank has not really had free checking in the past, he said. Historically, there was always some kind of requirement for account holders – usually a direct deposit arrangement or a minimum balance.
Bank of America’s proposed new basic checking account, called Essentials, will cost $6 to $9 per month, depending on the state. It comes with a mailed statement, access to online banking and a debit card.
Free checking will be available only through an eBanking account, which requires an electronic statement rather than a mailed one, and the customer must make deposits either at the ATM or remotely.
“We’ve been doing some research with customers over the last 18 months as a result of the economy and regulatory issues,” Vecchiarello said. “We wanted to see how consumers are conducting their banking.”
What the bank found is that customers want more clarity from their financial services providers, he said. They also want to be rewarded and acknowledged for doing business with the bank.
In short, Vecchiarello said, rather than a single one-size-fits-all account, the bank now offers four different accounts to appeal to diverse needs of customers.
CLINGING TO LIFE
Wells Fargo stopped offering free checking to new customers in California in July. The most basic “value checking” account comes with a $5 service fee, which can be waived with a minimum daily balance, or direct deposits into the account, said Julie Campbell, spokeswomen with Wells.
“Free is dying,” said Dan Bailey, executive vice president of retail banking at Tri Counties Bank.
But not all accounts will cost consumers, he said.
“The majority of people are OK with potentially paying a fee just for a standalone checking account as long as there are reasonable options available to avoid paying fees,” he said.
The bank has done extensive surveys of its customers and found that “people want products and they want services, and they want to know the rules of the accounts up front and clearly,” Bailey said.
The bank will likely stop offering free checking at some point but will offer ways for the customer to avoid fees, such as arranging direct deposit or meeting a minimum balance. As a result, “the vast majority of our customers will not pay a fee,” he said.
River City Bank eliminated its basic free checking account this month to new customers. About half the bank’s customers currently have free checking accounts, and those accounts will remain free, said Chris Nelson, River City’s executive vice president of retail banking.
The bank’s basic checking account now costs $15 per month, unless the account has a balance of at least $5,000. But that account also comes bundled with a free safe deposit box, free cashier’s checks and free money orders. The account also waives fees – up to a total of $15 per month – when customers use ATM machines not owned by River City.
The account comes with a lot of services and products that appeal to River City customers, who tend to be wealthier than average, he said. “We’re not really going after the mass-market customer.”
LAND OF THE FREE
Not all banks are jumping on the fee bandwagon. El Dorado Savings Bank, for example, is waiting to see what happens as other banks start charging, said Tom Meuser, the Placerville-based bank’s chief executive.
“The consumer is pretty angry right now with the economy and the high costs of everything,” Meuser said. “If they start to get hit with bank fees, that’s a reason to leave the bank.”
El Dorado continues to offer its value checking, which requires no minimum balance, has no direct-deposit requirement and has no fees.
“The thing I think a lot of bankers have forgotten is that checking accounts can be very profitable by themselves,” once interest rates rise out of the basement, Meuser said. More importantly, he added, “The money stays there. It is a good source of funds.”
The addition of fees by banks could be a windfall for credit unions, which tend to offer value to their members.
“We have free checking now, and has been free, and it will be free in the future,” said Donna Bland, chief executive officer of The Golden 1 Credit Union. “It is what it is, and it is free. No asterisks, no fees.”
The credit union has steadily increased new checking accounts, Bland said, citing the consolidations in banking over the past several years and now the new fee structures being assessed by the banks.
“I think a lot of people are finally getting fed up and moving,” she said.
SAFE doesn’t charge for checking now, and it doesn’t plan to. But that depends on regulations.
“We plan to hold out as long as possible,” Wirz said. “But if a big part of your fee income goes away, it may be something we have to look at.”
SAFE is currently trying to get more of its customers to take electronic statements, because that represents a significant savings over paper statements.
“If you are unhappy with your bank, call them and let them know. If they don’t help you, move your account,” said Gail Hillebrand, senior attorney with Consumers Union in San Francisco.
“The way to avoid fees is to be very careful. You have to watch your account. You have to look at what is happening on your statements,” she said.
For all the bluster being pushed by banks toward adding fees, banks do seem to be cautious in rolling out those fees, Hillebrand said. “We are seeing trail balloons by the banks. They are trying to see what the consumer will stand for.”