Why Some Banks Offer Free Checking Accounts and Why Some Don't

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Why don't many banks offer free checking accounts anymore? Read why some banks offer free checking while others charge for accounts.

Decades ago banks competed to get as many customers as possible, and one great way to do this was to offer free checking accounts. This is a great way for banks to get more customers.

Banks are for-profit businesses. Yes, if you overdraw your account often, you'll be charged overdraft fees and banks will make revenue from your misfortune. However, what about those shady customers that try to cash bad checks? It isn't necessarily someone who always overdraws their account, but some banks are trying to maintain quality relationships these days. Times are tough and crimes are on the rise, especially counterfeiting, scams, identity theft, and other financial crimes.

Some banks still offer "free" checking accounts with no strings attached, but most offer these accounts with certain terms. For example, if you get your direct deposit into the account and/or maintain a certain balance, the checking account will remain free. However, if you don't meet or maintain these minimum requirements there may be a service charge. Some requirements may be any or a mixture of the following (this list is not exhaustive and all banks are different): maintain a minimum balance of an amount the bank sets (this could be almost any amount from $50 to $2500), direct deposit, a certain number of deposits each term, a certain number of automatic payments/withdrawals each term, etc.

It costs banks money to maintain customer accounts and records. Annual information must be mailed out to clients, any changes, statements, etc. All this costs the bank money.

Some banks will say they offer free checking, but be sure to read the terms. Free checking may mean no annual fee to maintain the checking account, but the bank may "nickel and dime" you with fees such as fees for online banking, writing checks, and more. Always read any terms and disclosures you receive. It may seem boring and tedious, but it will help you remain out of bad situations; it's better to know what you're getting into beforehand!

Why have banks stopped offering as many free checking accounts? Perhaps some banks are seeking more "quality" customers. If someone with an account maintains a balance of $10 without direct deposit and wants to cash a check for $1000, there is high risk in cashing that check. The bank could be at a loss if the check is no good for whatever reason. Also, some banks charge non-customers fees to cash their checks, so the banks will still profit from non-clients.

Free checking accounts typically do not pay interest, although some do. Free checking is the most basic type of checking account and may not offer many perks, so be sure you know what you want before committing to a free checking account at any bank. If you cannot find any banks you like, check out if you are eligible to join any credit unions that are convenient to you. Most credit unions offer free accounts, you just usually have to buy your share by depositing a small amount of money into a savings account (often between $5 and $50).


personal experience as a bank teller

About.com: How Free Checking Really Works


Posted on Sep 25, 2011
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