Accounting
Free Checking Disappearing at Banks, But Still Common at Credit Unions
Once upon a time, banks made money by offering savers less interest than they charged borrowers. It was a solid plan that recognized risk, and bankers were often the wealthiest individuals in town. That model no longer exists.
May. 21, 2018
Once upon a time, banks made money by offering savers less interest than they charged borrowers. It was a solid plan that recognized risk, and bankers were often the wealthiest individuals in town. That model no longer exists, though.
Instead, banks make more from fees associated with accounts than they do from loans, which they sell off immediately to avoid servicing those loans. The result: Nickle and dime fees that are now in the range of several dollars. In short: Banks charge you in order to hold your money for you. And while they rarely offer interest-earning accounts, they make more from the loans.
One of the most obvious fees is that associated with checking accounts: Usually a monthly fee that is always incurred, or is charged if the account funds drop below a certain threshold. According to the latest report from www.Bankrate.com, only 38% of banks now offer free checking.
In contrast, more than four out of five credit unions offer free checking accounts.
According to the survey, 41 of the nation’s 50 largest credit unions (82%) offer free checking accounts to all members, with no minimum balance requirements or monthly service fees. That’s in stark contrast to the 38% of banks that can say the same (per Bankrate.com’s most recent survey of bank checking fees, which was conducted in Fall 2017).
Among the 18% of credit unions that charge monthly service fees, the most common fee is just $5 (well below the $12 most commonly charged by banks for non-interest accounts and $25 for interest-bearing accounts).
Credit unions are also the clear leaders when it comes to overdraft fees, which average $28.20 at credit unions and $33.38 at banks. Both are record highs.
An area where credit unions align very closely with banks is ATM surcharges. 92% of the credit unions in Bankrate.com’s survey charge non-members who use their ATMs, versus 99% of banks. The most common fee for each type of financial institution is $3.
There’s also a separate ATM fee that many institutions charge their own customers who use out-of-network ATMs. This is typically $1.50 at credit unions and $2.50 at banks. 36% of credit unions offer their members at least one free out-of-network withdrawal per week; 30% of banks do the same.
Many banks also charge fees when you deposit a check (that isn’t direct deposited), or when you visit a human teller, use an ATM, or have a variety of other transactions. Overdraft fees have long been a lucrative item for banks, as well.
“Between expanded membership eligibility, nationwide ATM alliances and even shared branches, many consumers find credit unions to be a convenient and viable option in the search for free checking,” said Greg McBride, CFA, Bankrate.com’s chief financial analyst.
Bankrate.com surveyed checking accounts and their associated debit card and ATM fees at the 50 largest credit unions by deposits (shares) in April 2018.