Why Checking Accounts are no Longer Free

Many banks have cut free checking accounts for their customers. Banks that are still offering free checking are requiring customers to meet extremely specific demands or a customer will be penalized with a fee. Several reasons that banks are requiring customers to pay for checking accounts include decrease fee revenue, a cap on debit card interchange fees as well as increase regulation.

Debit Card Interchange Fees

Debit card interchange fees are charged each and every time a consumer uses his or her debit card at a merchant. For example, if a customer purchases $25 worth of gas at a gas station and selects debit, the merchant is charged a debit card interchange fee. A portion of this revenue is returned to the bank that owns the customers account. Some of the proceeds goes to the processing network. While the debit card interchange fees are much lower than those of the credit card networks, the federal government has proposed limiting them to $0.12 per transaction. Debit cards used to account for a large amount of revenue on checking accounts

Reduce fee revenue

Other fees that banks charge consumers such as overdraft fees have either been eliminated or drastically reduced due to federal oversight in the past several years. Many banks that used to receive a large amount of their revenue from fees have had to turn to other sources of revenue. Checking accounts used to be extremely profitable for banks due to the many customers who would overdraft using a debit card. The federal government required all accounts holders to opt in to being able to overdraft on debit card purchases. Once this was required, many banks lost a large portion of their revenue.

Additional costs weighed down checking accounts

The industry standard has now become to charge for every service. Some banks offer customers accounts that only include access to ATM machines and charge a fee every time they speak with a teller. Many banks also are having to deal with a reduced amount of capital to loan. Loans are able to generate a large amount of revenue thanks to high interest rates. However, due to the economy, many banks are simply not loaning funds to consumers with poor or even fair credit. They rather hold on to the money and loan it to only the best customers.

Conclusion

Checking accounts are no longer free due to increased federal regulation and the decreased ability of banks to collect revenue. Banks are unable to justify free checking accounts when they are losing interchange fees as well as overdraft fees.

Miles Walker usually writes about car insurance quotes over at CarInsuranceComparison.org. His latest article looked at Alaska car insurance.