Most banks are being cautious

Although many banks, particularly larger institutions, appear to be “fee junkies,” determined to add to their bottom lines with ever-increasing charges for all manner of reasons, they are also very concerned about their perception to current and prospective customers. Successful branding is critical to financial institutions because of heavy regulation and limits on bank rates and their menu of products.

For example, they can increase loan volume by lowering interest rates and procure funds by increasing savings rates, but these options do not build customer loyalty nor help net profit.

All banks and credit unions spend much time and money attempting to increase the value of their brand, which, over time, does increase consumer trust and loyalty. You should compare service reputations just as you compare savings rates. Determine which bank is best for you.

While some major banks (e.g., Bank of America, Wells Fargo, Wachovia, and HSBC) have already indicated that they will probably eliminate free checking accounts, many other institutions are approaching the subject cautiously. Still, the only national bank that has made a definitive statement about keeping free checking is ING Direct, which may influence you when you compare bank rates.

Most banks are issuing more vague statements surrounding their future actions. “At present, we have no firm plans to eliminate free checking accounts” is a common mantra. Many are waiting to evaluate the depth of the negative effects on their gross revenue from new fee prohibitions.

Compare savings accounts and checking accounts with a full understanding of their terms and conditions in the future.

Debit card overdraft fee changes

The recent regulatory restrictions on permissible fees still project a future elimination of the ever popular free checking account. Eliminating some common charges, particularly the outrageous “overdraft fee” (typically around $30 to $40 per overdraft) on debit cards, will cut deeply into gross income. Beginning August 15, 2010, these fees for most account holders have disappeared.

Assume nothing, however. A checking and savings account comparison should include a fee evaluation along with rates and terms. For example, when you compare money market rates, look for new fees and/or restrictions. Also, when using the Internet to compare savings rates or checking account offerings, also obtain a summary of fees and restrictions.

The horror stories of the “$40” cup of coffee ($5 for the delicious latte and a $35 overdraft fee on your debit card), for most of us, will cease to exist. However, if you are among the 10% to 15% of the population that habitually overdraws their debit card account, you may still “opt in” for this protection (bank term).

Should you wish to continue to risk incurring these fees to ensure that your debit card won’t be rejected at the cash register, you can tell your bank to keep this feature—and to charge you for it.

Potential new fees and/or restrictions

Banks are considering reinstating some formerly common charges, usually called “account maintenance” fees. For years, these fees were imposed on all checking accounts and typically ranged from $5 to $15 per month. Historically, consumers could avoid these fees by keeping certain minimum balance levels throughout a month. These fees should return in the near future.

Another possible approach may be to institute some restrictions that may also carry fees for non-compliance. For example, limiting the number of deposits or checks written or debit card transactions may be a new “feature.” Should you exceed the account restrictions, you would then pay for the privilege of managing your account as you saw fit.

Most current free checking account holders should continue to enjoy their present terms into the future. Banks will be quite careful to avoid further negative publicity. However, those opening accounts after the August 15, 2010 effective date may face some unwelcome surprises.

However, to date, banks are carefully constructing some “hybrid” checking accounts. For example, TD Bank offers customers free checking for the first year. After this honeymoon period, the bank will charge you a $15 monthly maintenance fee only if your balance falls below $100 during a month. Similarly, banking giant Chase will charge you a $6 maintenance fee if your balance also moves below $100 in a given month.

These restrictions should be easy to meet and customers who pay attention will still enjoy a free checking experience. There will, however, be more changes in the near future. Until they learn how these regulatory changes and prohibitions affect their revenue, most institutions will keep “caution” as their operative strategy. They will try to replace some lost income as painlessly—for them and you—as possible.