Here's Why It's So Hard to Get Free Checking Anymore - and What to Do About It

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Writing a check to pay the bills with calculator and pen on desktop
Alamy
2013 is turning out to be a banner year for bank customers -- in a bad way.

According to a recent survey by personal finance website Bankrate.com (RATE), this year has already seen record highs set for the amounts that banks charge their customers for ATM fees, overdraft fees, and monthly maintenance fees -- just for keeping a bank account open.

According to Bankrate's 2013 Checking Survey, here's how much you can expect a run-of-the-mill, name-brand bank to ding you for run-of-the-mill operations you perform with your account:
  • ATM withdrawals: Your average bank now charges a non-customer $2.60 to withdraw money from one of its ATMs. That's up 4 percent from last year. Of course, your own bank gets to levy a fee too -- averaging $1.53 per transaction. Between the fee charged by your bank and the fee you pay an out-of-network bank to let you use its ATM, grabbing a quick $20 bill from the ATM could easily cost you more than $4.
  • Overdraft fees: Did you take out more money from that ATM than you actually had in your account? Oops! Now you can expect to get hit with an overdraft fee, and it will cost $32.20 on average -- up 3 percent from 2012.
  • Account maintenance: Don't play the ATM game? Just use your bank account for plain-vanilla depositing and check-writing services? That's clever -- but maybe not clever enough. On average, banks are charging $5.54 a month simply for account maintenance. And if you have an interest checking account, the fee's even steeper -- $14.64 a month.
New Fees Become Permanent Fixtures

Meanwhile, as the prices banks charge surge, more and more banks are doing away with "free." For example, the number of banks offering "free checking" declined by half since as recently as 2009. As of this writing, just 38 percent of checking accounts offered by the large banks examined in Bankrate's 2013 Checking Survey are free to customers.

So why are the banks so intent on nickel and diming us?

In large part, they're reacting to how the government crimped their profits back in 2010, when Congress passed, and President Obama signed, the Credit Card Accountability Responsibility and Disclosure Act (or "CARD Act for short). That law banned several consumer-hostile practices that banks had previously used to boost their profits, such as:
  • using "universal default" to hike interest rates on one credit card in response to a cardholder missing a payment on a different card
  • applying the new, hiked rate to debts already on the card, rather than allowing old debts to be paid off at the old rate
  • and levying a variety of lucrative overdraft fees on their customers without the customer "opting in" for overdraft services.
Deprived of those sources of profit, banks began hunting around for ways to cut costs (like ending free checking) and raise new revenues (the fee hikes).

And yet, the truth is that while banks were hurting for a while, they're not anymore. In fact, the Federal Deposit Insurance Corporation reports that in the second quarter of 2013, U.S. commercial banks and thrifts grew their profits by more than 22 percent in comparison to Q2 2012 -- to $42.2 billion.

But healthy once more, the banks are in no rush to give up their new fee income. To the contrary, they're doubling down on fee hikes.

How to Beat the Banks at Their Own Game

Banks are, after all, businesses -- and they won't sacrifice any profits they can make without a fight. But that doesn't mean you have to play their game. There are still ways to "work the system," and come out ahead even under the new rules. Here are a few ideas:

"Buy" your money in bulk: Withdrawing twenties at $4 a pop is an exercise in silliness. Fortunately, minimizing ATM fees is as easy as making sure to only use your bank for ATM withdrawals, and bunching up your withdrawals, withdrawing more than you immediately need, so as to ensure you've got enough cash on hand to skip your next trip to the ATM.

Skip the bank: Don't like the fees your bank is charging? Maybe it's time to dump banks altogether. As we pointed out earlier this year, for example, even if few banks offer no-strings-attached free checking anymore, the majority of credit unions do. Online brokers are another option. It's a good option if you already have a brokerage account at the institution.

The free is out there: Even among banks, not all are created equal. Out of 473 bank checking account options that Bankrate surveyed, 97 percent are either free already... or can be free if customers take the time to dot their i's and cross their t's. For example, a bank might deny free checking to most people, but offer it to anyone who has their paycheck direct-deposited into the account. Do that, and voila -- free checking.

Alternatively, a bank might offer free checking to its "best" customers -- the ones whose bank account balances are hefty enough. Thresholds for free checking vary, but average about $5,800. So if you happen to have $3,000 stashed in one bank, and $3,000 in another -- and are paying for your checking in each -- consider closing one account and merging the money into the other. Shazaam! You're over the $5,800 limit, and entitled to free checking.

Lose interest in interest: For many of us, the idea of handing over our money to a bank to lend it out at a profit, but receiving no interest on that money ourselves, sticks in our craws. Thus, we dismiss the idea of opening a non-interest-bearing checking account out of hand.

But really, with banks paying an average interest rate of 0.05 percent on checking accounts, there's no need for an account that pays interest. You won't miss out on much -- about $5 a year on a $10,000 account, or roughly the cost of one month's maintenance fee for having a too-low balance. Meanwhile, the average account size needed to get free checking on a non-interest-bearing checking account is a mere fraction of the money you need to get free checking on an interest-bearing account -- just $668 on average, according to Bankrate.

If you've too little money on hand to obtain free checking by merging accounts, then forgoing an interest-bearing checking account may be your best move.

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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