Small banks still offering free checking--but for how long?
May 18, 2011
With more and more large banks eliminating free checking accounts or putting excess requirements on how to prevent fees on your checking account, many customers have fled to smaller banks and credit unions that are still offering free checking accounts.
But many experts are now predicting that the days of free checking--even for small banks--will soon be over.
"The free checking account is disappearing and eventually it will disappear," HF Financial CEO Curtis Hague told TheStreet.com recently.
Still, many small or regional banks continue to roll out free checking account offers. New York Community Bancorp said recently it will not stop offering free checking, and Huntington Bancshares, which operates in the Midwest, recently rolled out its free "Asterisk Free" checking account. These offers are an effort to lure customers away from large banks, experts say, but are likely to disappear as banks face even more revenue restrictions this summer. Most online checking accounts remain free, however.
Checking accounts on the downswing?
Big banks began eliminating the free checking account in the wake of federal restrictions in the Dodd Frank Financial Reform Act on such bank charges as overdraft fees. Banks say those fees were used to cover the $250 to $300 a year it costs them to service a typical checking account with ATMs, bank branches and tellers behind the counter.
A recent American Bankers Association survey found that more than 80 percent of the banks in the U.S. plan to increase fees on checking accounts, nearly that number will increase fees on other programs and 66 percent will eliminate free checking. Rewards checking accounts are also being eliminated.
Although many banks allow customers to avoid checking account fees by maintaining a minimum balance or by setting up an automatic deposit, banks are bracing for even more lost revenue this summer when the Federal Reserve is expected to limit how much banks can charge merchants when a customer uses a debit card. Those limits on "interchange fees" or "swipe fees" are expected to cost banks up to $15 billion and could lead to even more fees on accounts.
Those restrictions have already prompted one regional bank, TCF Financial, to announce that it will end free checking. TCF, which has more than 440 branches throughout the Midwest, was one of the first banks to institute free checking accounts in 1986, and has been seen as an industry harbinger since. It recently announced that it would be the first bank in the nation to stop charging its customers overdraft fees of $35 or more every time their account is overdrawn, instead charging a daily fee of $10 to $25.
Exceptions to the rule
All of these developments are what makes Huntington Bancshares free checking offer all the more remarkable. According to the Columbus, Ohio, Dispatch newspaper, the "Asterisk Free Checking" is an extension of the bank's program that waives overdraft fees if overdrawn customers make a deposit within a day.
Huntington is hoping the increase in customers will help offset its losses from overdraft charges and swipe fees.
