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A bank in our area has been sporting a large banner declaring "Totally Free
Checking!" Another nearby bank invites people to "Earn Money on Your
Checking Account". Are those good deals?
Let’s examine those deals::
This bank’s "totally free checking" is free for the first two years. The bank is counting on the fact that when the fees kick in, you'll stay with them out of inertia. They're usually right about that, and if you have automatic deposit, their chances of keeping you are even better. As to the other offer: The interest rate that most banks pay on personal checking accounts is very low, and it is often computed on the basis least beneficial to you (such as on the lowest balance for the month). That would still leave you ahead, if not for the fact that there are usually fess that more than offset the interest (see below).
During the past decade, as mergers reduced competition among banks, they discovered a major new source of revenue: Fees for services that were previously provided gratis. Some things to watch out for:
(1) Maintenance fees: The daughter of a friend opened a savings account in the town where she was going to college. For a while she had sufficient income, so it was six months before she went to make a withdrawal. She was concerned to find that the account balance had decreased, and her first thought was that someone had taken out money fraudulently. No, she was told, the decrease was due to the fact that her account had less than the minimum balance required to avoid a monthly maintenance fee. If she had continued to leave the account untouched, the money would eventually have trickled completely into the hands of the bank.
(2) What’s not free: A neighbor opened a "free" checking account and later found out that, not only was check printing not included, but neither were deposit slips. He found that he could have checks printed inexpensively by using a mail-order service rather than the bank, but there was no mail-order service for deposit slips and the bank charged a hefty price.
(3) Special requirements: Some “free, no minimum balance” checking accounts are free only if you maintain a specified balance in a companion savings account. Since the companion account usually pays interest at a rate far below market, you should include the lost interest in the calculation of how much you'll save on the checking account. You might do better at another bank that charges a modest fee for checking but does not require a companion account.
(4) Stealth fees: Shortly after my neighborhood bank (where I was a customer) was taken over by a monster bank known for its exceptional greed, I received a "new, improved" replacement ATM card in the mail, with instructions to phone the bank in order to activate it. I phoned and was told of all its wonderful new features. I mentioned that my ATM card had hitherto been free, and asked whether the new one was free as well. "Yes", I was told, "for the first six months". The mailing had said nothing about a fee. (For that and other reasons, I now bank elsewhere.)
(5) Convenience: Before jumping at an attractive offer, find out whether the bank has any nearby branches, and what their hours are. Sometimes the inconvenience or impracticality is not worth the saving.
(6) IRA fees: Before placing IRA funds in a bank, find out whether they charge a custodial fee (many banks now do) and if so, how much it is.
(7) Unconscionable fees: Some banks have actually begun to charge customers for using a teller rather than an ATM.
(8) Limitations: Some banks now limit the number of telephone inquiries you can make per month, and will charge for any additional inquiries.
(9) Investigatory fees: Most banks now charge you for "research" if you question
an item on your monthly statement. If the bank you are considering
does charge such a fee, find out whether the fee is waived when your question
unearths an error on the part of the bank.
W. A. Shapiro
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