Big banks turning away from free checking

Depending on where you bank, the era of free checking may be coming to an end.

In recent weeks, several of the nation's largest banks have either eliminated free checking or made it more difficult to avoid service fees by requiring customers to keep heftier balances in their accounts.

It's a reaction, bank officials acknowledge, to new financial regulations that drastically limit banks' ability to quietly collect overdraft fees and cut their share of interchange or "swipe" fees when customers use their debit cards.

"Consumers can now make up their minds if they want to do business with those banks," said Norma Garcia, a senior attorney with Consumers Union, the Yonkers-based nonprofit that publishes Consumer Reports magazine.

If they don't, there are options. As borrowers have found, community banks and credit unions are glad to take customers no longer happy with the larger banks.

Kirk Kordeleski, chief executive of Bethpage Federal Credit Union, said credit unions always offered free checking, but banks often didn't until about 10 years ago.

"In the old days, if you overdrew your account, the bank would close your account and tell you to go away," said James Manseau, Bridgehampton National Bank's chief retail officer. But then banks realized they could make much more money on debit card swipe fees and overdraft fees paid by customers they attracted with free checking, he said.

"So now they're going back to what they used to do," Kordeleski said. "Bethpage never made a lot of money on overdraft charges. We were never addicted to overdraft fees."

Kordeleski said he expects Bethpage and other credit unions to profit from the large banks restricting free checking.

"We are going to aggressively promote free checking," he said. "It's fundamental to our business."

Small and medium-size community banks sing the same tune.

"As a new bank, we really haven't been living off fees," said Joseph Perri, chief executive of Islandia-based Gold Coast Bank, which requires $2,500 in a money-market account to avoid checking account fees. "We don't believe in nickel-and-diming customers. Big banks are going to turn into airlines soon" with their fees.

Community banks aren't able to set trends in fees, Manseau said.

"We need to collect fees, but they should be less than the competition," he said, adding that Bridgehampton didn't rely on overdraft fees. "We're not losing the income, because we never had it."

Even larger community banks, like Astoria Federal Savings and Loan of Lake Success, expect to benefit from the money center banks' fee increases.

"The key is, we believe our primary checking account customers are profitable" because their activity generates other income, said Astoria president Monte Redman. "We're very happy to take those unsatisfied [big bank] customers into the Astoria fold."

Avoiding the fees

If your bank imposes new fees, complain. Some institutions will negotiate if they think they'll lose customers.

If your bank won't bend, move your money to a bank or credit union that doesn't charge for checking. Some institutions require a minimum account balance or paperless statements to avoid fees, so make sure those requirements are acceptable to you.

Open the new account only with the amount necessary to avoid fees. Change direct deposits to the new account and cancel automatic bill paying with the old account.

Leave the old account open for at least a month to cover any checks or other payments you've made.

Wire-transfer money from the old account to the new one to avoid other fees.

Go to the old bank and close the account and get written confirmation of it, to avoid monthly fees piling up in error.

Source: Consumers Union