The Problem With Getting Rid Of Free Checking

Free Checking. It's one of those wonderful ideas of the last, oh I don't know. However long it's existed. Banks so wanted our money, they'd bribe us with things like coolers and other junk just to get us to sign up for free checking. So free checking was basically free (plus a present!) checking.

But now banks are in a tizzy because they're being "regulated." Personally, I think it's a joke, and they should be more heavily regulated, but that's neither here nor there. The problem is, they claim they can't make money, so they need to axe free checking. After all, how are the banks supposed to make money, now that overdraft fees aren't automatic? You know, I wanted that juice to cost me 35 extra dollars. I can think of very few times when overdrafting makes sense. Even being late on payments usually doesn't cost you $35, buying a soda certainly shouldn't. Then Dodd-Frank cut in half the amount of swipe fees they could charge per swipe on Debit card fees. So now they charge for the privilege of spending your own money.


So let's see. Free checking. How does it work?


In the beginning, I give a bank what money I have. Any future money I might hope to earn will also go in their vaults. I can/will do this up to $250,000.


With my money, and the money of millions of others, they make loans. They loan people my money and charge them interest. Auto loans, mortgages, small business loans, etc. These loans (I'm not a financial planner) will likely vary from 3% to 15%. Maybe even higher, who knows. Lines of Credit, I'm sure, have even higher rates. Many banks even offer credit cards with rates in the 20-30% range.


Now, they don't get my money for free. They actually pay me some interest too. It's an amazingly high rate of .01%. Basically, I could travel in time 10,000 years and I'd still be poor (not even accounting for inflation). They also give me wonderful extras like Bill Pay (oooh) and Customer Service. Also, now that I'm a "customer" I can utilize their other services, like loans and stuff.


But now, this model is apparently unsustainable. The banks just can't turn a profit anymore because of free checking. Well, actually, that's not true. They'll keep your checking account free if you have a minimum balance varying from $1,000-$15,000; utilize direct deposit; or some other stipulations (like using Bill Pay a few times a month).


I don't agree with this. Don't get me wrong, I think people should be paid for their services. But the bank isn't exactly doing anything for me here. All they do is protect my money. Well, that's not true, if they are robbed, insurance covers the loss. If they make terrible bets with my money and lose it all, the FDIC will give me what they lost, up to $250,000.


They don't give me checks, either. I don't use them, but if I want them, I have to pay for them. I want to buy something with my debit card? They get money. 


The fact is, simple checking accounts should be free because they aren't worth that much; the value just isn't there. Having a checking account isn't some magical vessel that transforms my money into anything--it just lets me pay people. And 99% of the time I pay people, my bank gets money. The bank uses my money to make money.


But you know what the absolute worst part is? This is a fee for not having enough money. I literally just opened up a piece of mail stating that if I do not maintain a minimum daily balance of $100, I will be charged $15 a month. Sure, I may not be making the bank much money at that small a balance, but I'm not costing them anything either. So if I were living pay check to pay check (which I'm currently not, anyone want to hire me?) and had a balance hovering around $100, it would take five months before my balance was brought down to $10. And anyone living paycheck to paycheck with a small monthly balance could run into this problem, for example, senior citizens.


It's a shame the letter just mentions regulatory changes, but doesn't actually say which. I have a feeling the changes don't affect free checking accounts.