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Checks and Balances

By: Toni Lapp

It would be hard to talk about trends in banking and not at some point focus on checking accounts. Free checking has become the expectation of consumers, but for banks, it has become the loss leader among their products. Google “free checking,” and up pop 255 million results!

Clearly, with interest rates hovering just above 0, and yields from deposit accounts as thin as can be, the situation has become unsustainable. Dan Roderick, a banking consultant with Strunk LLC, says that the median demand deposit account was earning $12 in the early 1990s, but now loses almost $200 per year.

And while overdraft fees and other service charges once filled the void nicely, there has been regulatory pushback, not to mention the cost of goodwill and consumer trust. The Pew Charitable Trusts recently released results of a survey that asked consumers about their banking experiences, in which 70 percent of respondents said they were “very concerned” about overdraft fees.

And in the midst of this, alternative forms of payments such as prepaid cards and Paypal are gaining popularity.

Perhaps it’s time to reconfigure consumer checking accounts. Roderick says Strunk’s proposed concept is to offer a “Value Checking package” for $3.95 to $5.95 per month that includes identity theft protection and cellphone insurance. The offerings would be rounded out by two no-fee accounts — a premium account for those who maintain high balances and a bare-bones account for those wanting basic services (i.e., debit card only, no mobile banking). 

“The trick here is to provide enhancements to the value checking product that are in high demand, and that consumers are willing to pay for,” said Roderick. “These enhancements must be low cost to the bank, but high value to the consumer.”

One enhancement being explored by R.C. Giltner is no overdraft fee checking. R.C. Giltner recently rolled out PaySound, a technology platform that enables banks to provide their customers with checking accounts free from overdraft fees for a monthly fee (typically $14.95).

This follows announcements earlier this year that Bank of America was testing a new “Safe Balance” account that promises no overdraft fees, for a flat fee of $4.95 month. The Center for Responsible Lending immediately issued a press release praising the move. The public, it seems, might be ready for flat-fee checking or at the very least, transparent fees.


Survey Says

In a survey by Pew Charitable Trusts, 52 percent of overdrafters didn't recall opting into coverage, but were still charged fees in past year. Sixty-eight percent of overdrafters would prefer to be declined rather than pay a $35 overdraft fee. Thirteen percent of people who paid an overdraft penalty say they no longer have a checking account; 19 percent report responding to overdraft fees by discontinuing overdraft coverage; and 28 percent report closing a checking account in response to overdraft fees.

Toni Lapp is the senior editor of BankNews magazine.

Copyright (c) August 2014. BankNews Media.