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Overview

Free checking: How to clear the hurdles

Last reviewed: May 2011
Illustration of people jumping hurdles with banking terms
Illustration by Daniel Hertzberg

Despite what you might have heard, free checking accounts aren’t dead. But you might have to work harder to find them or meet tougher requirements to avoid fees, especially among big banks.

A 2010 survey by Bankrate.com, a website that aggregates information about financial institutions, found that 65 percent of bank checking accounts were “free,” down from 76 percent the year before. Those accounts are charged no maintenance or activity fees, even with a zero balance. At many banks, fees are waived if you meet modest conditions, such as maintaining a small balance or setting up direct deposit. But some banks, including Bank of America, Citibank, Chase, and Wells Fargo, are making changes that probably will result in more fees for some customers, such as retirees, students, and others who have low incomes or account balances.

For example, before February, Chase’s basic-checking customers could avoid a $6 monthly fee by making five debit-card purchases each month or any monthly direct deposits. Chase dropped the debit option. Customers now have four ways to avoid a fee each month: make a direct deposit of at least $500, maintain a balance of $1,500 in a checking account or $5,000 across all their Chase deposit and investment accounts, or rack up $25 in other checking fees.

Bank of America is testing new options in Arizona, Georgia, and Massachusetts. For basic checking, a fee of $6 to $9 a month is unavoidable. (Currently there’s no fee if customers have direct deposit or maintain a $1,500 balance.) An “enhanced” checking option lets customers avoid a $15 fee if they keep a $5,000 balance across linked checking and savings accounts or deposit $2,000 a month in a linked checking or savings account. Another way is to use a Bank of America credit card once a month.

What to do

Don’t get caught off guard

Read all correspondence and electronic messages from your bank so that you’re aware of changes and can take steps to avoid new fees.

Consider alternative accounts

You might be able to switch to a different type of account to avoid fees. But by doing so, you might give up benefits or accept new restrictions, such as limits on the number of checks you can write each month.

Meet the conditions

If you have a choice, go for the easiest, such as direct deposit. If you choose to make a certain number of debit-card transactions each month to avoid fees, you’ll need a system for keeping track of them.

Opt for high-interest checking

Consider moving to a bank or credit union that offers high-interest checking. Although those accounts also have requirements, they pay relatively high interest on at least a portion of your balance. And during any month that you don’t meet the conditions, you won’t be charged a fee, although the rate drops significantly and you might lose perks, such as no-fee ATM withdrawals.

The high-yield checking account at Aspire Federal Credit Union in Northport, N.Y., for example, pays 3.51 percent on balances up to $10,000 and 1.01 percent on amounts above that. To qualify, you must make at least 12 debit-card purchases each month and one automatic payment or direct deposit, and receive your statements electronically. During any month you don’t qualify, the interest yield drops to 0.10 percent. To find high-interest checking offers, go to www.checkingfinder.com.

Search for deals

There are plenty of free and low-requirement accounts, especially at small banks, credit unions, and online banks. For example, Huntington Bank, with branches in Indiana, Kentucky, Michigan, Ohio, Pennsylvania, and West Virginia, offers free checking with unlimited check writing, online bill paying, and telephone transactions.

Some free accounts even pay interest. The Electric Orange checking account from online bank ING Direct (www.ingdirect.com) yields 0.25 percent to 1.25 percent, depending on the balance. But it doesn’t offer paper checks, so any payments you make must be done electronically.

Even Bank of America has gotten into the act. It’s offering a free eBanking account online. The rub? You must make your withdrawals and deposits online or by ATM and accept electronic statements. If you don’t meet the terms, you’ll pay an $8.95 monthly fee.

Did you know?

Seventy-six percent of the nation’s 50 largest credit unions offer free checking with no strings attached, according to Bankrate.com. That’s down from 78 percent over the past year, though still higher than the 65 percent of banks that offer free checking.