Free Checking, RIP—Mostly

Free Checking, RIP—Mostly
October 18, 2010

Citibank’s mid-tier checking account customers have begun paying a new monthly fee of $20 if the average combined balances of all their accounts fall below $6,000.

“Previously, the monthly maintenance fee was $9.50 to $15 in some areas,” said Natalie Riper, Citi public affairs spokesperson for Retail, Consumer & Commercial Banking.

Citibank's November 1 move to raise the monthly fee for those customers is a reflection of the impact of new government regulations that went into effect on August 15. Those regulations have stopped banks from automatically enrolling customers in accounts with overdraft fees. Banks are starting to see declines in those fees.

Citibank is not alone in charging more to make up for declining revenue as a result of the new regulations. Accounts are getting more expensive at a lot of big banks, including Bank of America and J.P. Morgan Chase.

Can Avoid Fees
Citigold account customers with monthly $50,000 balances in linked deposit accounts (checking, savings, money market accounts, CDs and retirement accounts) can avoid the maintenance fee. Customers can also qualify for the waiver with other balance tiers involving credit cards, loans and lines of credit.

For those with more modest balances, a basic banking account can avoid a monthly maintenance fee if five or more qualifying transactions occur during the statement period. These transactions include direct deposit, debit card purchases, bill payments, checks paid, auto deductions ACH payments and ATM cash withdrawals. So although this account isn’t really “free,” many Americans do average five or more transactions a month and will be able to avoid the fee.

Fred R. Becker, president and CEO of the National Association of Federal Credit Unions, said credit unions, too, are likely to be making changes.

“The new legislation will cost the credit industry significant dollars at each institution,” he said. “As a result, they will have to adjust their cost structure.”

Credit Unions Affected, Too
The result, said Becker, is that those credit unions that offered free checking – which was virtually all of them – will all have to reallocate their costs. Becker said he foresees some credit unions starting to charge for checking while others may need to curtail services.

But some banks say – or, at least, one bank says – they won’t make any changes because of the new overdraft regulations.

“We’re not going to lose anything because we never charged our customers for debit or credit overdrafts in the past,” said Robert Yohanan , CEO of the First Bank & Trust in Evanston, Illinois – a $600 million assets bank previously known for its feisty rejection of government bailout dollars. “Free checking isn’t going to totally disappear nationwide.”

Vicki Gerson (writer@vickigerson.com) writes for consumer, trade, custom and online publications and is a monthly business columnist for the What's Happening community newspapers in Illinois.