Does free banking exist?

It sounds like a yes or no question, but the answer isn’t that simple. In fact, the answer largely depends on the bank itself.

Some banks offer some free services, such as checking or savings accounts. Other banks may charge for those same services. And other banks may have a tiered structure that only charges for certain types of savings or checking accounts.

It’s a rough sea to navigate, especially if you’re brand new to the banking world.

If you want the best value for your money, it helps to understand what free banking really means. Don’t sign any paperwork until you read this guide – you’ll be glad you did:

Every Bank Is Different

The answer to the big debate about free banking starts with which bank you choose.

You have a number of options when it comes to banking, especially when you consider online-only banks. Each one offers their own suite of banking services. These services may include checking accounts, savings accounts, or investment options like CDs.

Each of these types of services may have a variety of options.

For instance, a bank might offer free student checking accounts for young adults, interest-bearing checking accounts, and business checking accounts.

Banks offer a variety of similar services because everyone has different financial needs. Each type of account carries its own set of pros and cons.

These accounts will vary between banks. It’s important you understand the benefits of each account and the potential costs involved.

Free Banking Isn’t Always Free

Most banks offer a combination of free and paid bank services. But even the ones touted as free aren’t usually without costs.

U.S. law states that banks cannot advertise their accounts as being free if they charge maintenance or activity fees.

For example, Bank of America charges a $12 monthly maintenance fee on their standard checking account unless you retain a daily balance of $1,500 or more or submit a direct deposit of $250 or more each month.

These fees are usually referred to as account management or account servicing fees. Banks charge these fees to help cover costs associated with managing an account, such as ATM maintenance, customer support, account statements, check clearing, and more.

However, that doesn’t negate a bank’s ability to charge fees for other things.

For starters, most checking accounts will require an initial deposit to open the account. This isn’t a fee, per se, but it does require you to put up some money. This amount depends on the bank and the type of account involved, but can range between $25-$100 or more.

If you pay for a bank account, you’re likely getting additional benefits. These might include a generous overdraft protection policy, free ATM access across the country, and some sort of rewards program, among other things. Additional fees are minimal.

When you sign up for free banking, you’re usually getting a bare-bones service. Most free bank accounts come with standard features, such as a debit card, online and mobile banking access, and customer support.

There are some free accounts that offer additional perks, but this is largely dependent on the bank itself.

There are fewer fees associated with paid accounts. This is because the amount you pay covers much of the costs associated with managing the account. This isn’t the case for free accounts, which is why banks will charge additional fees elsewhere (more on that in a minute).

These fees exist because your bank account costs the bank money to manage.

They have to pay someone to handle your transactions. They’re responsible for ATM upkeep. A physical bank location incurs overhead expenses in order to serve you.

They offer free banking services to you in hopes of earning additional business that will help them turn a profit, such as taking out a personal loan or mortgage.

However, if you manage your money well, choose the right account, and understand the potential costs of banking, then your free account will be just that – free.

Hidden Costs to Look For

So when is free banking not free? Here’s a hint: it has nothing to do with bad credit.

Here are a few common hidden costs you need to uncover before you open an account:

Stop Payment Fees

Stop payment fees on a check can vary between banks, generally ranging $15-$30 or more per instance.

A stop payment occurs when you notify your bank not to allow a transaction you made to process, such as canceling a check. This is commonly used for lost or misplaced checks.

There are a slight few banks who do not charge for this service. Other banks may charge a different fee depending on how you request the stop payment, whether it’s an automatic request online or by calling their customer service number.

ATM Fees

ATM fees contain two parts: a portion of each fee is charged by your own bank, and the other portion goes to the bank who owns the ATM.

If you’re using your bank’s own ATM, you might or might not be charged a fee. Some banks will waive ATM transaction fees provided you use their machines. Others may waive all fees regardless of which ATM you use.

The worse case is having to pay an ATM fee either way.

Most ATMs will not charge a fee if you’re only checking your account balance.

These fees can vary between ATMs and providers. Each machine will tell you the amount of the fee before you complete the transaction so you can decide if you’re willing to pay it.

Overdraft Fees

Not all free bank accounts will offer overdraft protection. If you overdraw on your account, you’ll be paying a hefty fee per transaction on top of repaying the overdrawn amount.

If you make multiple charges in a single day that put you in overdraft mode, you will be hit with multiple overdraft fees.

For example, if your bank charges $35 for an overdraft and you make three insufficient transactions, you could be paying $105 in fees alone.

In addition, some banks may charge a daily fee for each day your account remains overdrawn. The longer you remain in the red, the more debt to the bank you accumulate.

One of the best ways to combat these fees is by asking your bank to decline transactions when you don’t have the funds to cover them.

Paper Statement Fee

Some banks will charge a small fee if you opt to receive a paper statement in the mail. This fee covers postage and printing costs.

Banks generally do not charge a fee if you opt in to receive e-statements in lieu of a paper version.

Lost Debit Card Fee

Banks usually issue your initial debit card for free. They will also replace a debit card once it expires at no cost to you.

However, if you lose your debit card, your bank may charge you to acquire a new one.

This amount will vary by bank. For comparison, Bank of America charges $5.00 to replace a debit card ($15.00 for a rush replacement) while Wells Fargo doesn’t charge for a replacement card.

Return Deposit Fee

If someone writes you a bad check, you could be paying for it.

Larger banks often charge a fee for returned deposits. This fee can vary, usually between $12-$25 per check.

Smaller banks and credit unions may not charge you a returned deposit fee.

If you accept checks on a regular basis, you need to look into this potential fee before you decide on an account.

Foreign Transaction Fee

You can use your credit or debit card when you travel overseas, but it can cost you more than you may realize.

Foreign transaction fees can add up quickly. For example, Bank of America charges a flat 3% on foreign transactions and ATM withdrawals when you use your debit card. This means that a $50 purchase in U.S. dollars will actually cost you $51.50.

Early Account Closure Fee

Most banks require you to keep your account open for a minimum length of time. If you close your account before this time limit expires, you may face an early account closure fee.

BB&T will charge you $25 if you close your account within 90 days of opening it. Other banks, like PNC Bank, require you to wait a minimum of 180 days before closing an account.

Your best bet is to make the best free banking account decision the first time so you’re happy with your banking services. Doing so can help you avoid closing your account early and being slapped with an unavoidable fee.

Returned Mail Fee

One of the easiest fees to avoid in banking is keeping your address up to date. Some banks will charge a fee when your statement or other mailed communication is returned to them.

The amount banks charge for undeliverable mail varies. Woodforest National Bank’s returned mail fee is $10.00 for each month mail remains undeliverable. Some banks have been known to charge as much as $15 per month.

Rewards Processing Fee

Some banks offer rewards programs for using your free account’s debit card. Each time you make a purchase with your enrolled debit card, you earn points that can be redeemed for physical rewards, such as gift cards or other prizes.

It sounds like a win for you, especially if you were going to use your debit card anyway. But some of the prizes you request may come at a cost.

These fees are most common with requesting airline tickets. If you’re enrolling a debit card in a rewards program, make sure you look at the redemption terms to see if you’ll be paying a fee for your rewards.

Transfer Fees

Banks usually don’t charge a fee to transfer funds between your accounts, but they might if those transfers become too numerous.

If you’re moving money from a checking account to a savings account, you’re generally in the clear. But transferring money out of savings into a checking account in excess of six times per month could result in a fee.

This is because checking accounts are supposed to be transactional, whereas savings accounts should be stable. Banks are counting on that money staying put for lending purposes. If you have too many of these transactions each month, a bank might change your savings account into a checking account.

Teller Fee

If you prefer to have a real person do your banking transactions for you, you might have to pay for it.

Most people today use online and mobile banking, rather than venturing inside a branch office. However, if you prefer the personalized experience of in-person banking, find an account that doesn’t impose this fee.

These fees may not seem like much, but they can quickly add up. Even a single incident can set off a domino effect that drains your account a few dollars at a time.

It’s important you research your free banking options before you choose a bank to manage your money.

What to Look for When Choosing Free Banking

Everyone’s banking needs are different, which is why there are myriad account types to choose from.

If you aren’t keen on the idea of paying for a bank account, you’ll be glad to know there are more options than ever when it comes to choosing free banking.

When choosing a free bank account, make sure you explore the fees mentioned above to find out how much your bank will truly cost you.

Also, consider things like convenience, branch location (if using a physical bank), and consumer rating.

Don’t just consider your local banks, either. There are dozens of reputable online banking options that can meet your needs every bit as well as a brick-and-mortar bank.

It’s also a good idea to see what other services they offer that can meet your future banking needs. Changing banks can be a hassle, and selecting one that can handle all your financial needs can make life easier for you in the long term.

In Closing

Free banking isn’t always free for everyone. In part, it depends on the financial decisions you make. Knowing how to avoid fees associated with free banking can make a huge difference in your monthly statement.

For more great financial insight, visit our blog resources.