The Disappearance Of Fee Free Banking
Have you realized how it's becoming much tougher to find a financial institutions that provides free checking
? For quite some time, it was very common for banks and credit unions to provide most of their costumers with checking accounts that had no fees. But changes to rules and regulations in the banking industry have lead to the gradual decline of free checking in America.
Free checking accounts typically have no monthly service charges and no minimum balances. But it costs money for a bank to maintain a checking account, up to $250 to $300 per year. If your account is not generating that much revenue, then your bank could be losing money.
An annual study conducted by BankRate.com indicates an 11% drop in free checking accounts between 2009 and 2010. In 2009, 76% of accounts came without service charges or minimum balance restrictions. In 2010, the number was down to 65%, and you should expect that trend to continue.
The drop indicates a complete turnaround in the way things had been going. Since 2003, the percent of free checking accounts had been steadily increasing but things changed when banks were forced to follow new reforms.
Two major changes concerning how the banking industry is regulated are the main reasons for the sudden switch.
Optional Overdraft Protection
Probably the biggest issue for the financial industry was the Federal Reserve's rule that banks must give customers the choice of declining overdraft protection for everyday debit card transactions. This new rule affected only debit cards and not personal checks.
However, revenue collected from debit overdraft charges was quite substantial. It's been reported that financial institutions collected more than $37 billion in overdraft fees in 2009 - more than half came from debit and ATM transactions. The new rule allowing people to opt out of overdraft protection means their cards will simply be declined if they have insufficient funds. But it also means banks will lose a large portion of the fees they had been collecting.
The money obtained from overdraft fees helps make up for features like free checking accounts. Without that revenue, banks have to come up with a different way to make that money.
Traditionally, banks have made money by investing your money in other places. But with interest rates hitting rock bottom, the money you put in your accounts is less profitable.
Regulating Interchange Fees
Yet another source of revenue for financial institutions is interchange fees.
Banks and credit card companies like Visa and MasterCard charge merchants like gas stations, grocery stores, and others a percentage of the purchase every time a person uses their debit card. This does not happen if a customer chooses to write checks instead.
But a new provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act known as the Durbin Amendment could change all of that. Senator Dick Durbin of Illinois said he feels the move could boost the U.S. economy.
"By requiring debit card fees to be reasonable, and by cleaning up Visa's and MasterCard's worst abuses, small businesses and their customers will be able to keep more of their own money. Making sure small businesses can grow and prosper is vital to putting our country back on solid economic footing," the senator said in a statement release in May 2010.
The measure gives the Federal Reserve the power to manage interchange fees. But first, a study will be conducted to examine what it really costs to process and clear debit transactions.
The amendment is mainly intended for major financial institutions with more than $10 billion in assets, so smaller local banks and credit unions could continue charging the same for interchange fees.
There have been lawsuits filed challenging the constitutionality of the Durbin Amendment. However, banks are already bracing for the impact of the new reforms. That is exactly why the number of free checking accounts is dwindling and consumers are noticing higher fees and new fees from their financial institutions.
What Can You Do?
Right now, you still have choices when it comes to picking the place where you bank. The fact is, the majority of checking accounts (65%) still have no monthly service fees and minimum balances.
If you notice your bank starting to charge fees that weren't on your monthly statement before, start by looking into other kinds of accounts that could be better. You could even be eligible for fee waivers if you meet certain requirements, such as setting up a direct deposit.
If you can't avoid service fees at your current bank, you should be able to find a new financial institution that provides a better deal. So why not take your money somewhere else?
Don't forget, Remember, you can avoid the extra money your bank charges you to reorder checks when you decide to order checks online.
by: Kasey Steinbrinck
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