The banking industry had some pretty tough time in the past couple of years. First, it was the crisis led by sub-prime mortgage that also forced many banks, big and small, to close their doors; then passage of the CARD law that stopped banks, also credit card issuers, from setting interest rates arbitrarily; finally, the new overdraft law prohibited banks from putting customers into overdraft protection plans by default and charging overdraft fees. All these regulatory changes, while they can better protect consumers now, led to one one thing certain at the banks: Lost revenue.
Since banks now can’t raise credit card interest rates to 30% at their will and collect overdraft fees if the customer doesn’t explicitly enroll in the overdraft protection program (in this case the transaction will simply declined if there isn’t enough fund in the account), they are looking for other ways to make up what could be billions of dollars in lost revenue. And one of the areas that was targeted first is the free checking account, a product that was first introduced in the early 1990s in an effort to encourage people with less savings to use banks, not just the free products but, hopefully, other fee products as well, to conduct businesses. With a free checking account, the account owner usually doesn’t pay a monthly fee for using the account, even when the account has a very low balance. But the free checking accounts are disappearing, fast, not only at large national banks, but small, regional banks alike.
Starting May 15th, US Bank, one of the largest banks in the country, will replace a number of free checking accounts with one account called Easy Checking. While US Bank says that for existing customers, bank account number, automatic payment or direct deposit, and online bank access will not be affected after the migration, one key difference between old, truly free checking account and the new Easy Checking Account is that after May 15th, you will need to maintain a minimum account balance of $1,500 to avoid a monthly fee of $6.95 (with online statement) or $8.95 (with paper statement). The monthly account maintenance fee can also be avoided if you make a combined direct deposit of $500 or more.
Of course, this is likely just the beginning of the trend. Other big banks such as Bank of America and JP Morgan Chase are also reportedly testing the idea of adding fees to checking accounts. Maybe now is a good time to look at other banks, those smaller, online banks such as ING Direct and Ally Bank, for free checking account options.
