Free Banking -- What Is and Isn\'t Free with Free Banking

Author:     Thursday, September 04, 2014 12:00 AM

''Free'' Means Conditions Apply

While on the surface the definition of the term ''free banking'' seems intuitive -- almost unarguably obvious, -- there are parts of free banking that aren't. It's important to know how banks make money with free banking services, so you can save as much as possible.

The one thing to remember is that banks offering free banking -- free checking, for example -- have to will earn money somehow. Below are the three easiest ways for a bank to turn a free banking service like free checking and savings accounts into a profit.

1) ATM Fees

ATM fees are the easiest means for a bank to generate money off people that keep relatively small sums in their account. People often make the mistake of thinking that if they withdrawal small sums every time they visit the ATM, they will spend less because they won't have it in hand.

Unfortunately, that means that the fee of each withdrawal constitutes a higher percentage money the bank receives. The only way to avoid ATM fees is to choose a bank that offers free ATM withdrawals and always use their ATM, or walk into the bank to make each withdrawal.

2) Overdraft Fees

Overdraft fees are the fastest means of getting into a pickle with a bank. Not only can the fees be very high -- $20 or more per overdraft -- each overdraft counts separately. In addition, banks have been known to use the largest overdraft sum to drain an account which means more checks bounce. It is a sneaky alternative to clearing the smaller amounts and only charging for one or two overdrafts.

That is why it is best to find a bank that charges a small fee for overdraft protection and to pay that fee. Of course, the alternative is to keep your checkbook balanced correctly and never spend more than your account total.

3) Hidden Fees

Hidden fees come in all kinds of manners and forms. Hidden fees can apply when you use an ATM that isn't affiliated with your bank. There are sometimes check cashing fees. There can be fees for not keeping an account balance above a certain amount. There can be a fee for moving money from your savings to your checking account. There can be withdrawal fees on your checking. The list of hidden fees is almost endless.


The reality is, if you can simplify your banking to the point you do not accrue ATM fees, you are not penalized overdraft charges and you can work around the hidden fees, there is a chance you might truly be able to achieve free banking. If not, do your best to minimize the consequences of the conditions of this ''free'' service.


Source: BFI