Free Checking Doesn’t Always Mean More Customers Will Sign Up

If my bank serves all of my needs and I’m able to avoid the conditional monthly fee, why would I go anywhere else?

Jan 4, 2014 at 11:42AM


A recently published article by a member of the Federal Reserve Bank of Kansas City noted that there was an overall increase in the access to free checking accounts following the 2011 debit interchange fee regulation. Despite the increased availability of free checking, however, it doesn't translate to more use of free checking by U.S. consumers.

The relatively new debit interchange rule capped fees collected by U.S. financial institutions with at least $10 billion in assets, which led to a slew of changes that bombarded consumer checking accounts at major U.S. banks. The changes included increased monthly fees, loss of debit card rewards programs and higher service fees.

Since the rule excluded smaller banks, these banks had a competition edge — free checking being the major attraction when regulated banks had to restructure their accounts and fees to recoup nearly $8 billion in lost revenue.

"Regulated banks were more likely to raise checking account fees, but exempt banks were more likely to reduce or eliminate fees," wrote Richard J. Sullivan, author of the piece published by the Federal Reserve Bank of Kansas City. "Thus, consumers' net increase in access to free checking stemmed mainly from the greater availability of free checking at exempt bank."

Hard to say 'no' to big banks
While the rise in free checking accounts at smaller banks means expanded access to a no-cost transaction account, it doesn't mean that consumers are more likely to sign up for one. The reason is due to some of the competitive advantages held by big banks.

As of June 30, 2013, the top 10 U.S. retail banks (out of 5,980 U.S. banks) held 44 percent of total deposits, according to FDIC data.

From marketing to branch presence to financial services, megabanks are better equipped to cater to the constantly evolving behaviors of consumers.

Major banks are still preferred with widespread access to in-person service, large ATM networks and the ability to tend to one's entire financial needs (i.e., deposits, loans and investments). Although free checking is very tempting, convenience often wins in the end.

In the New York City metropolitan area, I have access to numerous local small banks that provide absolutely free checking, but I stick with Chase Bank for its convenience. If it serves all of my needs and I'm able to avoid the conditional monthly fee on my Chase checking, why would I go anywhere else?

For most major banks that have revamped their checking accounts, many have claimed that the implementation of monthly fees do not affect most of its customers, who are already fulfilling the requirements to avoid those fees.

In June, PNC announced that it was discontinuing its free checking account and replacing it with a new basic checking account that carried a $7 monthly fee, which can be avoided. "For current customers, the impact will be minimal," said a PNC spokesperson. "Nine out of 10 are banking this way already with balances that exceed the minimums."

Banking technology also carries an allure that attracts the increasingly tech-adept consumer population.

For instance, mobile check deposits have been the craze due to the massive adoption of smartphones. Today, the techie feature is available through mobile applications from the top 10 U.S. banks. It is far less common at smaller banks. Many consumers demand mobile check deposits enough that they'll switch banks for it.

Even if it's easy for find free checking from smaller banks, it's hard to say "no" to the perks of going with a big bank.

"Free" may captivate certain cost-conscious consumers, but many will realize that "value" far outweighs a no-cost service. What good is something free if it doesn't provide value?

The real threat to big banks?
The traditional bricks-and-mortar bank will soon go the way of the dodo bird -- into extinction, that is. This sounds crazy, but it's true. Every single one of the nation's biggest banks are dramatically reducing branch counts and overhauling the ones left behind. But despite these efforts, they're still far behind a single and comparatively tiny lender that's already leapt into the future. Since the beginning of 2012 alone, this company's shares are already up more than 250%. And they're bound to go higher. To download our free report revealing the identity of this stock, all you have to do is click here now.

Simon Zhen is an analyst, staff writer and columnist for His columns draw focus to all aspects of personal finance and to bank rates, products, and services.

The Motley Fool owns shares of JPMorgan Chase and PNC Financial Services. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers