Are Free Checking Accounts an Endangered Species?

Bank of America announced this week that it has ended its effectively-free eBanking account, moving the last of those customers into the bank’s Core Checking accounts instead.

The eBanking service wasn’t technically a free checking account, but it was pretty close – because it was quite easy to get around the fees. As long as you agreed to get statements electronically and avoided going to a real-live bank teller, the $8.95 monthly fee was waived.

By contrast, Core Checking charges a $12-a-month maintenance fee that’s more difficult to avoid — especially for low-income customers. To dodge that fee, account holders need to jump through higher-priced hoops, either keeping a minimum balance of $1,500 or more, or getting at least $250 direct deposited each month.

The change has sparked outrage and backlash, but as much as I’d love to hate on Bank of America, they’re more or less just doing what all the other big banks do. As The Atlantic notes, Wells Fargo, U.S. Bank, and others have scaled back their free (or de facto free) checking options in recent years. And most Americans probably haven’t noticed.

That’s because the big loophole in this racket – the way most of us avoid paying obnoxious fees for a checking account that yields little or no interest whatsoever – is to link up a direct deposit to your account. And that’s a pretty easy thing to do… for most traditional workers.

The trouble is, not everyone has this option at work – and it’s often the poorest Americans who don’t, and thus get stuck paying such fees. A 2017 study by Bankrate showed Americans earning less than $30,000 a year pay three times as much in bank fees each month.

Using Direct Deposit to Avoid Checking Fees

Banks don’t want customers keeping a stale account open indefinitely with just a few bucks in it. After all, they make their profits by lending your money to other people and charging them interest on the loans, and through various fees when you use your account.

But if they know you’ve got a consistent cash infusion coming in via direct deposit, they can feel more comfortable lending more money out, and they know you’re going to use the account regularly to access your cash – eventually paying an ATM fee here or there, or using your debit card to make a purchase.

So they crave a steady, electronic deposit. For most Americans, that’s no problem: If you hold a typical salaried job, or even if you receive government benefits, it’s pretty easy (or in the case of Social Security and VA benefits, mandatory) to request electronic direct deposit instead of receiving a traditional check in the mail.

However, not everybody draws a regular paycheck or gets paid electronically. If you’re self employed, your income might fluctuate wildly, and there’s no single payroll department you can ask for direct deposit. If you work for cash, tips, or on a per-diem basis, it can be tricky to meet the direct deposit requirement as well.

Alternative Ways to Get a Direct Deposit and Avoid Account Fees

If you don’t have a regular paycheck coming in, here are some other ways you might be able to meet the direct deposit requirement to waive your checking account fees (check with your bank to make sure):

Side hustles: If you’re able to earn some money on the side through sharing economy services — driving for Uber or Lyft, for example, or hosting visitors through Airbnb – you’ll generally be paid electronically through direct deposit.

Person-to-person transfers: Share an apartment? Have your roommate set up a direct monthly transfer for their share of the rent using a service like Venmo or Zelle. Some banks will consider that a direct deposit.

Automatic savings: If you have a free online savings account with a bank such as Ally or Capital One 360, you could set up automatic transfers to your checking account that might qualify as direct deposits. Of course, you’d ideally be moving money the other way — automatically stashing a few hundred dollars a month from checking into savings — but this method could nonetheless help you avoid a maintenance fee if you’re between jobs or decidedly entrenched with your brick-and-mortar bank.

Better Bet: Open a Free Checking Account Online

But why go through all that hassle, when free checking accounts do still exist? You can open a free checking account – one that will even pay you a small bit of interest – through an online bank, with no fees or minimum balance.

Capital One 360 and Ally Bank are two of the biggest names in online banking, with good options for both checking and savings accounts. Capital One 360 has some physical banking (and cafe) locations around the country, which gives them a slight edge if you happen to live near one.

Here’s what you can expect with a truly free checking account from an online bank:

No fees or minimum balances: Most online accounts have zero maintenance fees, and don’t require you to keep a minimum balance. Both Ally Bank and Capital One 360 offer a free book of checks, too – a courtesy my physical bank never extended to me – and free or cheap ($0 to $5) refills.

Large ATM network: Both Ally Bank and Capital One 360 allow fee-free ATM withdrawals from a network of more than 39,000 Allpoint ATMs, which you can find in convenience stores, pharmacies, and other locations. Ally will also reimburse you for up to $10 of other ATM fees per month.

It helps to have a smartphone: Perhaps the trickiest thing about using an online checking account, particularly if you don’t have a direct deposit option at work and you’re living paycheck-to-paycheck, is depositing paper checks. It’s super simple, if you have a smartphone: Just snap a photo of the signed check within your bank’s app and fill in the deposit information. If not, you can still deposit a check by mail, but that will take a few days (a tough wait if you need the money soon). Capital One 360 users can deposit checks at some Target stores as well as Capital One locations.

The best part is, instead of threatening to bilk you with monthly maintenance fees, these accounts actually pay you. Both Ally Bank and Capital One 360 offer competitive interest rates on their free checking accounts – a feature you rarely find at a legacy bank unless you’ve got upwards of $20,000 dollars in your account.

Don’t put up with checking account fees.

The moral of this story is, you don’t need to pay Bank of America (or any other banking giant) for the privilege of letting them use your money to make more money.

If a free online checking account doesn’t meet your needs, because you don’t have a smartphone, typically need access to your money more quickly, or simply cherish face-to-face banking – remember to check out local credit unions in your area, which are often more community minded and run less like a profit-crazed financial Goliath.

Here are some more resources if you’re looking for low-cost banking or free checking options:  

Jon Gorey
Jon Gorey
Contributing Editor

A former personal finance reporter at TheStreet and columnist for MarketWatch, Jason Notte's work has appeared in many other outlets, including The Newark Star-Ledger, The New York Times, The Huffington Post, and The Boston Globe. He previously served as the political and global affairs editor for Metro U.S. and the layout editor for Boston Now, among other roles at various publications. Notte earned a Bachelor of Science in Journalism from the S.I. Newhouse School of Public Communications at Syracuse University in 1998.

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