How to Find Free or Low-Cost Banking

Free Banking is Getting Harder to Find, But No-Cost Checking and Cheap ATMs Are Still Available.

The direct cost of banking for consumers has never been higher — unless you shop around.

In response to new laws designed to make credit card costs more transparent, and laws to lower the so-called "swipe fees" for ATMs, national banks such as Bank of America, JP Morgan Chase & Co., Citigroup, and Wells Fargo & Co. have increased the fees for banking.

In February, 2011, Chase was the first to increase bank fees this year when it phased out free banking and started charging checking account customers with low balances $6 per month. In March, Chase started charging a $3 per month for its customers who use Chase ATMs, and $5 per transaction for non-customers.

In August, Wells Fargo announced it would start charging a $3 monthly fee for debit card using customers in Nevada, Washington, Oregon, New Mexico and Georgia.

In September, Bank of America said it would charge customers $5 per month for debit card use.

This month, Citicorp’s Basic Checking account will increase from $8 to $10 for accounts with less than $1,500. Its EZ Checking account, which was free, will now cost $15 fee if the account contains less than than $6,000. The Citibank Account used to cost $20 per month if the account contained less than $6,000, but now the minimum balance to avoid the fee is $15,000. Citi has not announced a monthly ATM fee for its customers.

Why The Cost of Banking is Increasing For Consumers

A confluence of events is responsible for banks making the cost of banking more obvious than in the past:

• ATM fee increases: In mid October 2011, the Federal Reserve set the maximum "swipe fee" a bank could charge for an ATM transaction. The new maximum is 24 cents, which is about half of the previous average swipe fee of 44 cents. The 20 cents per transaction may not sound like much in isolation, but the expected cost to US banks will be an estimated $6.6 billion a year in lost revenue. Bank of America, which as 58 million banking customers, expects to see a decrease of $2 billion in revenue due to the swipe fee change. When the Fed proposed the swipe fee cut, banks said they would ask consumers to make up the difference. The $3-$5 monthly fees occur when the consumer uses a debit card at a point of purchase, but not at their bank’s ATM machine. One way to avoid the monthly charge is to withdraw cash from an ATM, and make a habit of using cash for purchases.

• Credit CARD Act of 2009: The 2009 change to the Truth in Lending Act made it tougher for banks to sock consumers with late fees. One common trick by credit card issuers was to change the payment due dates, which was outlawed in 2009. Another was to bury the true cost of carrying a balance. These changes, among others, may have had an effect on consumers' perception of the costs of credit cards. Average credit card balances have fallen, which results in fewer fees and less interest income for credit card issuers.

• Nagging Recession: Numerous academic papers have established a correlation between bank profitability and recessions. In short, the data supports common sense — when a country's GDP grows, so does aggregate bank profitability.

• Mortgage Losses: One pair of numbers paints a sobering picture of the mortgage business today: In 2008, Bank of America purchased Countywide for $4 billion. After reviewing the quality of Countrywide's mortgage loans, Bank of America had to set aside $18 billion in reserves to deal with mortgage loans the bank expects to go bad. Bank of America has reported losses of $9 billion from 2008 through late 2011. Bank of America’s troubles are more acute than other big banks making mortgage loans, but show how the collapse in housing prices in many areas sends ripples throughout the economy.

What Consumers Can Do to Cut the Cost of Banking

The most obvious way to cut the cost of banking is not to bank at all. Credit unions are owned by members, do not make a profit, and offer fewer services than big commercial banks. Still, free checking is still possible at about 75% of credit unions. Also, according to Bankrate.com, credit unions charge 50% less for out-of-network ATM usage. Also, credit unions tend to offer lower rates on HELOCs and car loans. Mortgages rates, however, tend to cary according to market rates and not the originator.

Another option is to do business with a local bank. Like credit unions, many local banks offer no-cost checking but fewer services than the national banks. The Web site FindABetterBank offers lists of local banks ranked according to the consumer's list of priorities. Visiting local banks' Web sites will also reveal the costs of common services.

Readers have asked the Bills.com advice columnist Bill about the Walmart financial services offerings. Walmart is not a bank, but instead partners with General Electric's financial services unit, which issues the Walmart MoneyCard — a debt card. It also partners with Green Dot, which processes Walmart customers debit transactions. The retailer's services are geared for the one in four US households that are not served by a bank or credit union. It costs $3 to add funds to Walmart MoneyCard, and between $3 and $6 to cash a check. Walmart does not lend money, nor does it back deposits in the Walmart MoneyCard with a federal guarantee.

There are three advantages to dealing with Walmart for simple banking needs: First, the cost of cashing a check at Walmart is cheaper than competing check-cashing service providers. Second, Walmart offers its money centers in more than 1,000 of the retailer’s 3,000 locations.

In most instances, however, a consumer would be better served, at a lower cost, by dealing with a credit union.