You've been a customer of your bank for years, and enjoyed a free checking account as a perk of doing business. Then one day you find out that the rules are about to change.
This is precisely what happened to many bank customers in 2010 after the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 created new consumer protections against fees and rate hikes. In response to the regulations, banks looked for other ways to make up lost revenue, and many took a harder look at free checking with no strings attached.
Major banks started charging monthly fees that ranged from $5 to $30. At the same time, these banks also offered loopholes whereby watchful consumers could avoid these fees. For example, as of July 2010, Wells Fargo ended free checking and started to charge customers a $5 monthly fee. Customers can avoid this fee, however, by maintaining a minimum balance of $1,500 or making monthly deposits of $250 or more.
Why banks charge for formerly free services
Any time a bank changes the rules, it's frustrating for the customer. Free checking originally began as a way to increase deposits that the bank could loan out. The costs of offering free checking are typically paid by the small percentage of customers who incur overdraft charges. In the case of the CARD Act, limits were placed on overdraft fees, saving money for the consumers who habitually overdraw their accounts, but transferring the charges to the customers who handle their accounts responsibly.
By charging a fee or placing more requirements on customers in order to have the fee waived, the bank is able to subsidize the checking account service that was formerly paid for by overdraft fees.
How to avoid checking account fees
If your bank has announced plans to start charging for checking, take a proactive approach to avoid paying those extra fees. Here's what to do to continue to enjoy fee-free checking:
- Know the rules. If you want to stay with your bank, understand the new terms fully. Are there ways to have the fee waived, such as minimum account balances, direct deposit, making a specified number of transactions, or switching to online statements and ATM-only transactions?
- Switch banks. Check out community banks and credit unions, many of which offer free checking.
- Go online. Similar to an online savings account, which has lower overhead costs, online checking accounts are usually free.
Free checking is out there, but it might require you to be more hands-on in managing your accounts. Still, every penny saved counts!