Consumers seeking truly free checking need to look to smaller financial institutions, either credit unions or community banks, according to a leading personal finance website.
Bankrate.com questioned banks and the top 50 credit unions in January 2014 about their checking offerings as part of its annual free checking survey and found that 72% of the credit unions surveyed offered what the site called "standalone" free checking while only 38% of banks overall did so.
Bankrate defined "standalone" free checking as checking accounts that are not only free of fees but which also do not rely on the consumer taking other steps to keep the accounts free, such receiving their statements electronically, committing to direct deposit or keeping a certain minimum balance.
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The site also pointed out that an additional 24% of credit unions surveyed provided free checking for members who agreed to use e-statements and direct deposit, raising the total percentage of surveyed credit unions keeping their checking free to 96%.
The site did not reveal what percentage of banks offered free checking if a customer started using e-statements or direct deposit.
Bankrate said the percentage of both credit unions and banks offering standalone free checking has fallen since 2010, with 6% fewer credit unions (78% to 72%) offering the no-charge accounts and 27% fewer banks doing so (65% to 38%).
Greg McBride, Bankrate's chief financial analyst, attributed most of the shift to the changes in debit card interchange that came in with regulations required by the Durbin amendment of the Dodd-Frank Act.
That capped debit card interchange for financial institutions of more than $10 billion in assets. Significantly, all four credit unions which have had their interchange capped also participated in the survey.
Debit card interchange helped subsidize the costs of checking accounts which carried debit cards, McBride explained, but with that cap gone those accounts began to lose a bit of money and became harder to keep as free.
But he also suggested that getting more consumers to try electronic statement delivery and direct deposit, both of which help cut checking account costs, was also driving some of the shift.
"I would say that it's definitely a mix of things, but the biggest is likely the difference in interchange for the bigger banks," McBride said, observing that community banks, which can be as small as credit unions and therefor exempt from the debit cap, had also not seen as steep a drop in the numbers offering free checking as have the biggest banks.
Consumers also got a better deal from credit union checking accounts than bank checking accounts in other ways as well. For example, bouncing a check at one of the 50 largest credit unions will cost an account holder $26.96, where at a bank a bounced check will cost an average of $32.20 at banks.
Bankrate also reported 30% of the 50 largest credit unions don't charge their members for using another financial institution's ATMs or provide at least one free withdrawal from another institution's ATM per week.But almost all of the largest credit unions (96%) charge nonmembers for using its ATMs, Bankrate reported.
McBride said the good news for consumers is that free checking has not ended and is likely readily available in their community, but might require additional effort to find. He also noted that credit unions, unlike banks, may not require a minimum deposit to open a checking account but usually require consumers to open a savings account and keep some amount in it to become and remain members.
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