A big bank threatens to end free checking. Others may follow. Here’s why that sounds worse than it is

New York (CNN) — Most banks offer free checking if, for instance, customers have their paycheck direct deposited or they maintain an average minimum balance.

The majority of people with checking accounts (73%) take advantage of the option, according to a 2023 Bankrate.com survey.

But if regulatory costs go up for banks, free services like checking may go away, at least if they follow Chase’s lead. Marianne Lake, the head of Chase Bank, told the Wall Street Journal last week that Chase might stop offering free checking and other free banking services.

“Consumer banking is predicated on banks providing services for free to consumers such as checking accounts, debit cards and electronic bill paying. The model then relied on banks being able to recoup those costs elsewhere in the consumer banking business, such as with debit interchange fees, overdraft fees, late fees and higher interest rates,” Jaret Seiberg, financial services analyst at TD Securities, wrote in an analysis of Lake’s comments.

The Consumer Financial Protection Bureau, for instance, has finalized a rule that caps credit card late fees at $8. However, it is not in effect yet because it is being litigated. The CFPB also has proposed that banks be limited in how much they can charge customers in overdraft fees. Separately, the Federal Reserve is expected to further limit how much banks can charge merchants when customers use their bank debit cards to make a purchase.

While banks — especially smaller ones trying to attract deposits — may still have to offer incentives to bring in customers, one consumer advocate doesn’t see customers running for the exits if their bank does in fact impose a fee on their checking account at some point in the next couple of years.

Bank accounts can last longer than a marriage

“People tend to stick with their bank accounts — sometimes more than they stick with marriages,” said Adam Rust, director of financial services at the Consumer Federation of America.

Rust is kidding/not kidding, apparently. Bankrate found that the average US consumer has had the same checking account for nearly 18 years. The median duration of first marriages that end in divorce is eight years, at least the last time the Census Bureau checked, which was in 2009.

The top three reasons people cited in Bankrate’s survey for staying with their bank were: “Happy with customer service,” “Always had the account” and “Convenient branch or ATMs.”

Apart from those reasons, Rust suggests another factor that might dissuade people from changing banks for any reason: With automated bill payment options, the idea of disentangling yourself from Old Faithful might seem like more hassle than it’s worth. He noted that you may have information on 10 to 20 service providers that you pay regularly embedded in your bank account records. So, if you were to switch banks, you might have to manually switch them all over.

In any case, he added, paying a modest fee for your checking account might not be the worst thing. That’s especially true if the reason your bank is tacking one on is because it will be limited in how much it can charge you for other things, like overdrafts.

That’s because upfront pricing is more transparent than being hit with higher, backend surprise fees. And it’s not like you’re not getting anything in exchange for a checking fee. “A bank account is very useful,” Rust said.

The average overdraft fee was close to $27 last year, according to Bankrate, which noted some banks charge as much as $38. The average fee on interest-bearing checking accounts, meanwhile, was $15.33. And the average fee for noninterest-bearing checking accounts was just $5.31.

Of course, if your money is with one of the largest retail banks in the country, such as Chase, you might skip the interest-bearing option altogether unless you have a high balance. That’s because the average interest paid is around 0.01%, despite credit card rates being at record highs after the Fed embarked on a rate-hiking spree in the past two years to tame inflation.

All that said, your free checking options might not disappear if a bank’s regulatory costs don’t change because there is too much pushback, or legal challenges prevail.

Or, if those costs do rise, maybe some banks might decide for various reasons not to eliminate free checking. For instance, after passage in 2009 of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act), which limited some fees and interest charges, the CFPB found in 2015 that “total costs to consumers have fallen … and credit has generally become more available to consumers.”

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