Free Checking Is Basically a Thing of the Past

Big banks once offered some basic services without fees. But that's become rarer and rarer.

A man using a Bank of America ATM
Chris Keane / Reuters

It’s getting harder and harder to avoid paying for one of the most basic and necessary banking services: a checking account. And that could make it even harder for low-income customers to access the services of mainstream banks.

Just this week, Bank of America finished converting an unspecified number of customers still using its eBanking checking account to a different kind of checking account that will charge a monthly fee of $12. While the original eBanking account wasn’t technically free, its monthly $8.95 fee could be circumvented if account holders didn’t go to a teller (which fewer and fewer Americans do) and agreed to get their statements online instead of in the mail. The fees for the new account won’t be as easy to get around. In order to have the $12 monthly fee waived, customers will need to keep their balance above $1,500, or have direct deposits of $250 or more per month.

In comparison to most other major banks, those terms aren’t out of the ordinary, and those fees are comparatively low, Betty Riess, a spokeswoman for Bank of America, said in an email. That’s true. In recent years, plenty of other major banks including Wells Fargo and U.S. Bank have moved away from no-fee or effectively free checking accounts in recent years. “Checking accounts oftentimes are free if certain conditions are met—of course, those conditions can be tough for people to meet,” says Thaddeus King, who works on consumer-finance issues at the Pew Charitable Trusts.

Still the change could be a blow to some some of the low-income clients who relied on the ability to forgo a few services in exchange for access to free checking at a major financial institution. Many Americans, especially those who don’t earn much, have a tenuous relationship with the traditional banking system. Around 7 percent of Americans don’t have very basic banking access, such as checking accounts, and around one-quarter of Americans don’t have access to all the banking tools that they need, such as affordable accounts, debit cards, and credit.

So why are banks making it harder for Americans to keep an account? Over the past few years, overdraft practices—when banks charge customers for overdrawing their checking accounts instead of denying the transaction—have come under scrutiny. The fees on such policies can start at $35 at major banks, and many banks have relied on transaction reordering, which sorts checking account withdrawals from highest to lowest in order to increase the likelihood of one or more overdrafts on a low balance account. This so-called “overdraft protection” costs Americans around $14 billion a year, according to the Center for Responsible Lending.

These policies have disproportionately hurt low-income Americans who are more likely to overdraft (and wind up closing accounts because of constant overdrafts); they have also brought in a lot of revenue. The shift away from harsh overdraft penalties will undoubtedly help some consumers avoid onerous charges, but the fees generated by those overdraft policies were a big part of the free checking-account model. Thus, as banks lose that revenue stream, it’s become more likely that customers have to pay for their accounts.

There are still options for those who are unwilling or unable to pay a monthly fee: some smaller regional banks, credit unions, and banks without brick-and-mortar locations still offer free checking accounts. And many banks offer low-fee checking accounts for customers who are willing to forgo basic banking options, such as paper checks or bank branches. But at big banks, the move away from free checking is likely here to stay.