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
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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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43 Comments

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nkowalak

Been with the same bank for almost 50 years! We have moved, but always had every thing free from the bank so stayed there for checking. People should not have to have charges, the banks are rich, thanks to us, and previous comments are right on--there sure aren't interest being paid on accounts now.

November 18 2013 at 8:08 PM Report abuse rate up rate down Reply
liontwin33

Have had free checking from Bank of America since the late 80's. Even have a separate internet only debit account for free. If we ever have to pay a penny, we wil be switching to our credit union. We clearly stated that to them, and they backed off from charging us anything.

November 18 2013 at 11:46 AM Report abuse rate up rate down Reply
merstockgto

Many banks will waive a fee if you have automatic deposits into your acct. I have not paid to have a checking account for several years. Being a senior citizen now I have a free account as we have automatic deposits each month and do not need to keep a minimum or maximum balance. We also get free checks once a year. We never use ATM's. We hardly ever need cash. We just use the debit card or credit card and pay the full balance each month.

November 18 2013 at 1:23 AM Report abuse rate up rate down Reply
jrexmarda

I still have free checking from my bank. I live in PA.

November 17 2013 at 9:14 PM Report abuse +1 rate up rate down Reply
Karr Ash

Credit unions folks! Have been a member 47 years. Free checking, free overdraft....loans in a minute, they know me and all of my financial matters. Love the,. Banks hate them and want to deny their non profit status as they cannot competent with them. Credit unions do not screw me or the public over like the banks have done. Credit unions have not taken the public for a ride on tax dollars. Support credit unions....drop your bank!

November 17 2013 at 8:41 PM Report abuse +2 rate up rate down Reply
1 reply to Karr Ash's comment
liontwin33

Been a member of the same credit union for 50 years now. If it wasn't for my wife's insistance, I would have switched to them from that damn BofA (one of the causes of our financial meltdown) a long time ago. We don't pay a penny for our 2 accounts with them, just like our credit union. If they ever attempt to charge us, we WILL switch. We differ in opinion probably because I was union my whole life, and my wife not.

November 18 2013 at 11:51 AM Report abuse rate up rate down Reply
harborlights

Why anyone, rich or poor, would use a bank rather then a credit union is beyond me. Nearly every community has them, and the membership rules have been relaxed in the last few years so that essentially anyone who lives in the community can join a local credit union.
Local credit unions usually offer free checking and zero ATM fees at paricipating ATM's. In fact, my own credit union pays ME a nickel for each time I use my debit card as a credit card. And although the interest on the accounts is just as bad as everywhere else, credit unions tend to have easier loan terms than banks. Add to this the fact that they are local to you community and you have a win-win situation all-around.

November 17 2013 at 7:51 PM Report abuse +1 rate up rate down Reply
ranewbould

Poor banks they don't earn enough getting 20-30% interest rates on outstanding credit card balances. Poor babies....

November 17 2013 at 6:59 PM Report abuse +1 rate up rate down Reply
tastadr

Free checking is available at most credit unions, and you can skip the ATM fees by getting cash back when you shop for groceries. The average cost of using an ATM is $4+, both ends added. You can go to grocery store and get a pint of Ben and Jerry's ice cream for $4 and get cash back during the purchase. Or you can just not use cash, most places take debit cards now. But, anyone smart enough to read this article probably already knows this.

November 17 2013 at 3:57 PM Report abuse +1 rate up rate down Reply
backhoebozo

I was with bank of America for 30 years.Had a free business account if i used my debit card once a month---so i bought a coke and it was still free.so after all the time with them they decided to charge me 26 bucks a month unless i had at least 250 a month automatic withdrawl-I quit them and do you think they care? no way- but there are other banks ---they need me I dont need them

November 17 2013 at 11:10 AM Report abuse +3 rate up rate down Reply
2 replies to backhoebozo's comment
mac2jr

Bank of America is looking to move out of the U.S.A., and settle in India or China or somewhere else where they can screw over their customers without worrying about regulations, i.e., treating people right.

November 17 2013 at 1:35 PM Report abuse rate up rate down Reply
nan.pelosi

Absolutely correct. I was a pawn of Bank of America's for around 20 years. As soon as they started kicking up the fees, I dropped them quick and went to a credit union. The Credit Union actually knows who I am and they have not tried to cheat me like BOA~!

November 18 2013 at 11:08 AM Report abuse rate up rate down Reply
backhoebozo

boa sucks

November 17 2013 at 11:05 AM Report abuse rate up rate down Reply
1 reply to backhoebozo's comment
merstockgto

That is nothing new. They sucked 30 and 40 years ago and maybe before that.

November 18 2013 at 1:25 AM Report abuse rate up rate down Reply