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Bank Fees Survey mid-2013: Free checking hits a new low

MoneyRates.com Senior Financial Analyst, CFA
August 19, 2013

Some customers will pay hundreds in monthly service fees to have a checking account this year, while others will pay nothing for the same privilege. While this may seem unjust, the customers who enjoy free accounts are probably armed with nothing but better information.

The latest MoneyRates.com Bank Fees Survey -- a semi-annual report that highlights trends in the cost of checking accounts -- indicates that checking accounts continued to get more expensive in the first half of 2013, with more accounts implementing monthly service fees. The average overdraft fee in the survey also rose.

Yet as with previous surveys, the figures suggest that there are still ways savvy consumers can sidestep this trend.

Banks fees in a nutshell

The average monthly service fee is now $12.43, while the average overdraft fee is now $31.60. Based on those average figures, a checking account customer who overdrafts his account three times in the course of a year would pay a total of $243.96 in monthly and overdraft fees for the year.

Despite these heavy costs, there are cheaper alternatives. While free checking accounts -- meaning those that are free of a monthly service fee -- are getting harder to find, they still exist. Of the checking accounts in this survey, 31.30 percent had no monthly service fee. There are also considerable differences in the size of the fees that different banks charge.

Finding free checking and lower fees can be easier if you know where to look, and the survey data suggest that starting your search at certain types of banks may be helpful.

Online vs. traditional

According to the survey data, consumers may pay significantly lower fees by choosing an account from an online bank. Compared to traditional accounts with branch-based service, online accounts are much more likely to be free of monthly maintenance charges. Of the accounts surveyed from online banks, 78.95 percent had no monthly fees. Only 27.79 percent of the accounts at brick-and-mortar banks were free of monthly fees.

Online accounts also posted lower fees than traditional accounts. Among accounts that charge a monthly fee, these fees averaged $9.49 at online banks and $12.48 at traditional banks. Overdraft fees averaged $25.50 at online banks and $31.90 at traditional banks. ATM fees were also lower at online banks.

Large vs. small

The size of the bank also impacted average fees in the survey, but these differences are not as overwhelming as the gap between online and traditional accounts.

Large banks tend to charge higher monthly and ATM fees than their smaller and medium-sized counterparts, and are less likely to offer free checking. On the other hand, overdraft fees tend to be lowest at large banks and highest at small banks, with medium-sized banks somewhere in the middle.

Choosing the right account

Today consumers have many different banks and checking account types to choose from. That degree of choice ultimately empowers consumers, but it can also be a bit confusing. Here are some tips for making sense of the marketplace when comparing checking account terms:

  1. Keep your balance in mind when comparing fees. Some banks have different fee tiers for different size accounts, while others waive monthly fees completely if you maintain a certain minimum balance. Figure out what your typical monthly balance is likely to be, and make sure you are comparing fees for accounts at that level.
  2. Know your banking habits. The fees you pay in any given account can vary according to how you use the account. For most customers, monthly service fees should be the paramount consideration. But if you tend to overdraft your account frequently, overdraft charges should figure prominently in your comparison shopping. If you often use out-of-network ATMs, then be sure to factor in a bank's fees and policies related to those transactions.
  3. Opt out of overdraft protection if you can. As noted above, banking habits can have a big impact on bank fees, but one way you can improve your habits and lower your fees is to opt out of overdraft protection. Ironically, overdraft protection is not a bad thing to have if you rarely use it. However, if you overdraft your account frequently, opting out of overdraft protection may spur you to improve your discipline and save money.
  4. Consider online banks. Online banks are more likely to have free checking, and tend to have lower fees in general. If you are comfortable doing your banking online, this option might save you money.

In many cases, the trends in bank fees are going against consumers. But the wide variety of checking accounts available today can help them sidestep many of these growing costs.

Methodology

The MoneyRates.com Bank Fees Survey is based on the MoneyRates Index, a sampling of 100 banks consisting of the 50 largest U.S. retail banks by deposits, plus 50 smaller banks.

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Your responses to ‘Bank Fees Survey mid-2013: Free checking hits a new low’

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Charlie

19 August 2013 at 4:09 pm

That's why I do my "banking" at a credit union.

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