Free Checking Lives, With Sneaky Fees


Checking feesIt's quite reasonable to assume that free checking is on the Endangered Banking Benefits list. But it's not.

According to a survey by, 35% of checking accounts examined don't charge monthly service fees. While that's down a bit from 38% earlier in the year, it's still a sizable percentage.

But remember, banks are not offering free checking out of the goodness of their hearts. They're in business to make money -- off you.

Fees That Make "Free" Worthless

New reforms and regulations have hindered banks' ability to earn revenue on some parts of their business. As a result, they've simply shuffled around their charges and are making up the difference elsewhere.

Onerous overdraft fees: For example, they're raking in around $38 billion in overdraft fees, charging a median fee of $35 per incident, when the median amount by which we overtax our account is just $36!

Check-clearing chicanery: Banks have also made more money by applying those overdraft charges in clever ways, ordering transactions to maximize the amount we pay. Here's a simple example: Imagine that you have $500 left in your account, and you write five checks, for $400, $50, $50, $50, and $50. You've written $600 worth of checks, so clearly, you've overdone it. The bank could process your four $50 checks first, and your account could cover them. Then the $400 check would bounce, triggering a fee, of perhaps $35. Instead, though, many banks will process the $400 payment first, so that you run out of funds sooner and it is able to charge you two $35 fees.

Taking before giving: Most banks tend to post withdrawals from your account before they post deposits too.

Tying up your cash for paltry interest rates: While monthly fees can add up -- especially since the average such fee is $11.75, totaling $141 per year – trying to qualify for free service can be harder on your finances than paying a monthly toll. Consider, for example, that the average minimum balance to open an account is $413 but, the average minimum balance required for free checking is a whopping $4,123. If you parked that $4,000 elsewhere and earned 1% on it, you'd collect $40. Even if you couldn't find higher rates for your cash, what would happen if one month you had an expense that required a large withdrawal? Fall below the minimum account requirements and you'll have to pay for the monthly checking fee anyway.

What's Spelled Out in the Fine Print

A recent report from the Pew Charitable Trust looked at the United States' 10 largest banks and concluded that they're putting "consumers at financial risk" by charging them more than various services are worth.

Good luck fighting the bank over fees: "More than 80% of accounts examined contain either binding mandatory arbitration agreements or fee-sharing provisions that require the accountholder to pay the bank's losses, costs, and expenses in a legal dispute regardless of the outcome of the case." And if you find the fine print hard to understand, that may be by design, too. Banks are increasingly facing pressure to give consumers more information, in transparent, plain English.

Sure, it's great to find a free checking account -- but take some time to compare your options and choose the best deal for yourself. Remember that while there may be no monthly service fee, the bank might be collecting much more from you in other ways. Check out credit unions, too, as a recent study found that 76% of them offer free checking with no strings attached.

Longtime Motley Fool contributor Selena Maranjian holds no position in any company mentioned. Click here to see her holdings and a short bio.

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Join a credit union. They don't pay much interest but they don't charge you for a lot of extras.

August 09 2011 at 9:18 PM Report abuse rate up rate down Reply

STAY AWAY, PEOPLE. It's not worth it. Go find a credit union instead.

My formerly Free WaMu checking has been turned into FEE checking by the evil that is Chase. I don't blame the former WaMu workers; they have to carry out the unfriendly, downright greedy policies of their Chase bosses in New York.

Thinking about that $100 or $125 coupon they sent you? It's bait, to catch anyone foolish enough to bite. The only banks that offer that much are also the ones that you should avoid. Think about it: people hate Chase so much that it takes a $125 bribe to get people to join. Check out Chase's reputation online (look on Google or Facebook, search on "I hate Chase"). Try this site:

Well, here's what Chase wants in exchange for that $125 bait coupon:
Checking: $12 monthly fee if you can't keep at least $1,500 in the account at all times. Direct deposit will waive it but each DD must be at least $500. That's your NET paycheck, after taxes and deductions. You can also waive it by keeping $5,000 in a savings account earning a lovely 0.01% interest rate.

Look at all the other crap Chase tries to pull on you:
They hold everything at least 1 business day. NOTHING is available to you on the day you deposit a check. They even hold their own checks (Chase checks from other Chase customers).

$5 for money orders (Wal-Mart charges 60 cents). $8 for cashiers checks. You can't have more than 4 withdrawals or online transfers out of your savings account...$3 fee for each one after that.
If you go negative on your checking, the overdraft fee is $34 AND you get a $15 fee for every 5 days that your balance is negative.
If you write a check to someone and they walk into a branch to cash it but are not Chase customers, Chase will charge him $6.00.

Oh and about those commercials about using your phone to deposit checks: If you don't take a good picture and the image causes a bad scan by Chase or rejection from the bank the check is drawn on, you will be charged a $12 returned deposit fee.

The online banking and the ATM's have frequent outages. One time, all 3 ATM's at this branch were dead. The website is sometimes down for several hours at a time DURING THE DAY. Worse, the online banking and ATM's work on East Coast time, so their cutoff times are 3 hours earlier than other banks on the West Coast. Online banking cut off time for transfers is 8 pm. Pacific.

Finally, if you have to go inside, Chase forces you to talk to a banker if you have anything beyond a simple deposit or withdrawal. Talk about harassment !!! The bankers use the same script on you every time even if none of your stuff has changed and you want nothing to do with their sales pitch. They spend a lot of time on greeting and saying hello, but then they piss you off with terrible policies, high and frequent fees, and error-prone computers that go down all the time. This is FAKE customer service.

August 09 2011 at 4:41 PM Report abuse +1 rate up rate down Reply

Compass Bank is one of the WORST banks when it comes to charging new, made up fees for ridiculous items. They started to charge me $35 a month because I wasn't using my account enough. They would just add fees, and when I confronted them about it, they would just stand their and stutter like the idiots that they are. They are notorious for holding deposits for days before they show on your account, in order to rake in NSF. Look up most complaint sites, and you will see tons of negative comments about them. Don't EVER bank with them!! They are no better then thieves!!!

August 09 2011 at 12:50 PM Report abuse rate up rate down Reply