Tuesday, July 6, 2010

How Bank Accounts of the Future Will Cost You

by Terry Savage

Once upon a time, the banks wanted your business so badly they actually gave you a free toaster as an incentive to make a deposit. That's a time few remember — a tale told by elders to amuse the younger generation.

It's one thing to stop giving incentives; it's quite another to start charging you for the privilege of depositing your money. Yet that's just what's around the corner — the end of free checking, free cashier's checks and the pittance of interest you might be getting if you leave a balance in your checking account.

In its place, you could find yourself paying fees for everything from "inactivity" to debit transactions. You'll have to consider a complex series of tradeoffs in order to stash your money safely and conveniently in a checking account.

For example, you could be required to keep a significant balance in your checking account to avoid a $15 monthly fee. That means "hiding" your true balance from yourself with an extra $500 or more sitting in an account that doesn't earn interest.

Or you might have to have your paycheck or Social Security check direct-deposited to avoid a monthly fee. Or consolidate your bills by paying your utilities using your credit card — so you only have one or two large checks to write every month — in order to avoid fees for excess checks. Depending on your bank, direct debit of mortgage payments or car loan payments could keep you under the fee-paying transaction limit.

The point is that you'll have to pay attention and be creative to save money on something you used to take for granted.

The banks are just getting even for the recent laws that limit overdraft and late fees on checking and credit cards. It's been estimated that it costs from $250 to $300 a year for a banking institution to maintain your account. And if the spendthrifts aren't going to pay the extra costs they incur, then the charges will be spread to those who scrupulously avoid overdrafts, use debit cards and always pay their credit card bills on time — and even in full.

Credit-card issuers are seeing charge-offs in the double-digit range — and someone has to make up for the billions that are written off amidst soaring consumer bankruptcies. Now those substantial costs are being passed along to all of us.

The end of "free checking" is only the first step. The next step is to do away with paper completely — or pay a fee. I've long suspected that once they got all of us paying bills online, they'd start charging for that service, too! We're saving them money if they don't have to process paper checks, so we should actually be rewarded.

But this is not about reason — it's about recouping the costs of doing business.

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