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More strings attached to 'free' checking accounts

With new regulations limiting the fees they can charge, banks have raised the bar on customers who don't want to pay to write a check.

December 12, 2010

By Doreen Hemlock

The days of free checking accounts in America are waning.

New laws that reduce overdraft fees and the charges that banks impose on merchants for handling transactions are cutting deep into bank revenues, prompting many financial institutions to add charges or extra conditions on their checking accounts.

The portion of checking accounts offered by banks for "free," with no monthly service charge or minimum balance, fell from 76% last year to 65% this year, according to a new national study of big banks by the website

That means customers will have to shop more carefully — and figure out what their financial needs and habits really are — to get checking-related services free or at low cost, consumer advocates say.

Some options: Sign up for direct deposit; do more banking online; use your debit card more; link with other accounts; and maybe switch to smaller banks or credit unions where free checking is more common, they advise.

"The real important thing is that you don't get distracted by reward programs," said Tower Group consultant Brian Riley, citing a recent study showing that rewards for a Hawaii trip could take years and $20,000 in debit transactions to accrue. "You really need to be focused on the services you want."

Consider Bank of America. It now charges $8.95 per month for its basic checking accounts. But it waives that fee when account holders meet one of three conditions: they can set up direct deposit of their payroll checks; they can bank online or at ATMs and receive their bank statements electronically rather than in paper form; or they can keep an average $1,500 balance in the account.

Your banking habits determine which account and waiver fits best. An Internet-savvy student with no paycheck might opt for the e-banking account. But someone on a salary might do better with waivers for direct deposit. Ask your bank for help, experts say.

"Free checking became a virtual commodity. That's going to change," said senior analyst Greg McBride. "But it will still be available to consumers who are intent on having a free checking account."

So, how should consumers proceed to limit or eliminate fees?

While just 65% of checking accounts at big banks are offered free, another 23% become free by meeting such conditions as direct deposit,'s recent study found.

Direct deposit is an easy solution for those on a payroll. If you route your paycheck directly into your account electronically, you pay no fees at Wells Fargo, Chase and other banks.

Another option is to bank more online. You might consider an online-only bank. Devoid of the costs of bricks and mortar, they tend to offer more free checking accounts. offers an account that pays interest and will even mail your paper checks for you, according to its website.

You also might do more business with a traditional bank over the Internet, which saves the bank money on tellers in branches. That explains why Bank of America offers an e-banking account.

Another option is to switch to community banks and credit unions. They tend to offer more free checking options, often because they expect less profit than bigger banks, said's McBride.

"Large regional and national banks were the last to jump on the free-checking bandwagon, and now, they're the first to jump off," McBride said.

Credit unions are generally cooperatives beholden to members, "so you're not trying to make money for personal investors or outside stockholders," said Meredith Gibson, senior vice president of marketing of Melbourne, Fla.-based Space Coast Credit Union, which offers free, no-interest checking.

Yet even credit unions are reviewing their pricing in light of regulatory changes that increase the costs of compliance and cut revenues, experts say.

Central to the changes is a consumer-protection law that slashes the overdraft fees that brought in more than $37 billion to banks last year. And financial reform trims the "interchange fees" that merchants pay banks for processing transactions such as debit card purchases. That leaves less cash to subsidize costs to open and maintain free checking, financial specialists say.

Banks in other countries charge for debit cards, or they vary charges based on how many services you use, favoring larger users. Those are models U.S. banks may consider, said Tower Group's senior researcher Riley.

Hemlock writes for the South Florida Sun Sentinel/McClatchy.

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