Personal Debt Issues

Free checking on endangered financial species list

(9/8/2011) ERATE Exclusive - The free checking account industry is entering the Ice Age.

The number of banks offering free checking accounts dropped 11 percent in the last year, according to a national study of 2,265 financial institutions by Moebs Services, an economic research firm in Lake Bluff, IL.

Smaller institutions are a better source for freebie checking.

Moebs' study reveals 72.5 percent of institutions surveyed were offering free checking accounts, compared to 83.5 percent that offered them a year ago.

Regulatory reform, economic malaise and a general move by banks away from anything that's free are among the reasons, according to Moebs.

"They are also making greater use of e-statements and direct deposit to cut costs," said Mike Moebs, economist and CEO of Moebs Services.

"Sixty-three point six percent of Wall Street banks offer free checking in 2010, compared with 92.6 percent in 2009. In contrast, community banks use of free checking declined to 71.7 percent from 78.3 percent, while credit unions fell to 73.4 from 89.3 percent," Moebs said. says banks are willing to sacrifice customers because checking accounts don't pay the bills. New regulations limiting revenues from debit cards (typically attached to checking accounts) and other rules restricting how much banks can charge for overdrafts and other fees, reduce big banks' ability to afford free services.

Consumers who want free checking are better off checking out smaller institutions.

The number of credit unions offering free checking accounts increased by 5.1 percent over the last year, Moebs found, while the number of community banks offering the service declined by just one percent.

'Community banks and credit unions are welcoming the millions fleeing" the big banks, Moebs says.

"This is a big opportunity to gain market share for the friendly Main Street financial institutions," he added in a report by

Moebs shows a trend toward simplification of checking accounts with institutions reducing the number of checking account offers to interest checking and non-interest checking.

"Now is a good time to shop for a checking account, but consumers need to do this wisely looking for the best deals which appear to be with the Main Street Institutions," Moebs said.

Community bankers see free checking as an opportunity to separate their meme from the "Too Big to Fail" crowd.

Moebs Services surveyed more than 2,500 banks and credit unions in June 2011 and found that only 34.6 percent of banks with at least $50 billion in assets still offered free checking, down from to 96% at the end of 2009.

But almost 71 percent of smaller banks still offered free checking accounts at the end of June, according to Moebs, off just slightly from about 78 percent in 2009.


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