Banking: The end of free checking accounts?
“If you’re poor and have to write or cash checks, life got tougher” last week, said Robert Reed in the Chicago Tribune. Bank of America stopped offering its last free checking account that does not require a minimum balance, prompting a loud chorus of “boos and hisses” from customers. People who had the free accounts have now been shifted to ones that charge $12 a month, unless the customer has a minimum balance of $1,500 or a monthly direct deposit of $250 or more. “The timing of the bank’s decision, right on the heels of a massive Republican-backed corporate tax cut,” was one reason for the outrage, said Ryan Grenoble in HuffingtonPost.com, especially since this change will predominantly affect poorer Americans. Roughly 7 percent of the country doesn’t have a banking account, while about a one-fifth doesn’t have access to banking tools such as debit or credit cards. Raising fees on basic services will only push such people toward predatory lenders and “even riskier financial institutions that exacerbate poverty.”
“Free checking is basically a thing of the past,” said Gillian White in The Atlantic. One major reason: The increased federal scrutiny of overdraft fees. Americans pay roughly $14 billion in overdraft fees annually, and federal regulators have in recent years begun to crack down on banks’ shadier practices, such as transaction reordering, which sorts withdrawals from highest to lowest in order to increase the likelihood of one or more overdrafts on a low-balance account. “Fees generated by those overdraft policies were a big part of the free checking account model.” So as that revenue stream has dried up, “it’s become more likely that customers have to pay for their accounts.” This shift should be a “vivid reminder” that we shouldn’t expect banks to serve anyone but their shareholders, said Jordan Weissmann in Slate.com. Banks exist to generate profit, and households that struggle to maintain a minimum balance in their checking account “are usually not very profitable customers,” unless they are paying through the nose for overdrawing on their accounts.
Free checking accounts “do still exist,” if you look hard enough, said Nick Clements in Forbes.com. Most major banks will waive their monthly fees if you have a regular paycheck deposited directly. If that’s not possible for you, internet-only banks are your best option. The venture-funded online bank Aspiration, for instance, has a no-fee checking account with no minimum balance, no direct deposit requirements, and no ATM fees; the trade-off is that there are no brick-and-mortar branches if you want face-to-face banking assistance. Going forward, it will be interesting to see if this online option takes off. Are people willing to pay a monthly checking fee for in-person service, “or are they willing to give up branches for a truly free experience?” In the meantime, at least “consumers have choices.”