Free Checking Not Dead Yet at Credit Unions
“With free checking accounts becoming less prevalent in national banks, credit unions can be an invaluable resource for the average consumer.”
— Greg McBride,
Bankrate.com
According to a study by Bankrate.com, 39 of the 50 largest credit unions in the U.S. still offer free checking.
Key Question: With new regulations and increasing pressure to generate fee income, how many of these 39 credit unions will still be offering free checking in 2011?
Bankrate surveyed the 50 largest credit unions across the country for its 2010 Credit Union Checking Study.
Among those credit unions not offering free checking, the highest monthly fee was $10 while the lowest was $1.
Minimum Opening Balance
Just over half of the credit unions surveyed, 27 out of 50, do not require a minimum opening balance on their free checking accounts. Of those requiring a minimum opening balance, the average was $16. Though many credit unions in the survey require $1 as an opening amount, the study found three that required a $100 minimum. Teachers FCU and Addison Avenue FCU had the highest minimum-opening balances: $2,500 for a 0.15% and 0.05% yield respectively.
Interest APY
19 of the credit unions surveyed had interest-bearing checking accounts. The average yield was 0.30% and the highest was 1.01% at Police & Fire FCU in Philadelphia.
Restrictions, Conditions & Fine Print
Forty-one of the credit unions have no balance requirement or monthly fee on their checking accounts.
Almost all of the credit unions, 47 out of 50, allowed unlimited monthly transactions. State Employees’ Credit Union, one of the three credit unions putting restrictions on their free accounts, lets members write up to 50 checks per month but are charged 20¢ per check thereafter. It’s hardly worth noting, so why not make it free?
American Airlines FCU allowed four free transactions — deposits or withdrawals — by phone or in person, and charges $2 for subsequent transactions.
“The average consumer does 25 to 30 transactions per month on an account,” Hank Israel, director at financial consulting firm Novantas, told Bankrate.
Only one of the credit unions surveyed charged for debit card transactions. The State Employees’ Credit Union of Maryland assessed a 25¢ fee for each PIN-based purchase with a check card.
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Jeff, it doesn’t take much of a crystal ball to see where we are headed. Our fee income will have to be replaced and the obvious place to start is the checking account fee. It will be difficult to replace all fee income lost through overdrafts and interchange so we will need to reduce the expense as well as replace the income. A Wall Street Journal article on June 16th reported that Bank of America found that more than half of their checking accounts were unprofitable and cost the bank between $250-$300 per year. I see a scenario in the not too distant future where these things happen:
- New sources of fees are found including substantial monthly fees on most checking accounts
- Reward program, free checks and other benefits are discontinued for unprofitable or marginally profitable accounts
- Unprofitable checking accounts are forced closed
Trying to balance credit union philosophy with the realities of the marketplace we may develop a “lifeline” checking account for those members that truly can’t afford to pay the fees but still need basic access to a checking account.
Thanks for sharing your insights Chuck. I concur.
Jeff,
I think it will come down to the choice that a credit union either gives a dividend to it members, or that the free checking account is the dividend they receive, and nothing else.
Credit Unions will need to decide what has bigger impact for them and their membership.
I would recommend preserving the dividends.
Love your pullout quote: “With free checking accounts becoming less prevalent in national banks, credit unions can be an invaluable resource for the average consumer.”
At Kasasa, we’re proud we can offer our accounts for free. And we love all our financial institutions! Thanks for helping to celebrate the news that credit unions and community banks are being recognized for their awesome resources! Go local banking!