New overdraft regulation has many asking if free checking has come to an end.  After all, isn’t overdraft income the only thing that makes these accounts profitable?

The answer is a resounding no!  When our founder launched our New Customer Acquisition strategy in 1981, overdraft income per account was less than $20 annually and debit card interchange income was nonexistent.  Interest rates were at an all time high.  The free account made economic sense then; it made sense when overdraft and interchange fee income climbed to over $200; and, it will make sense at any point in between.  Here’s why:

1. Free Checking, when part of a strong overall product set, has always had only average fee income.
2. Free Checking has average balances of $1,100 in the checking account itself and over $7,000 in total household deposits.
3. Customers dislike almost all other ways to charge for checking and will flock to banks that continue to offer the simplicity of free checking for their primary transaction account.
4. The vast majority of community banks have lots of capacity!  They have 1,000 to 1,200 checking customers per branch and the capacity to serve three times as many without adding costs other than statement rendering. 

So, customers love it and it makes money.  It seems like instead of being dead, free checking might be reborn as a differentiator again for community banks.  To find out more Contact Us

To read more, see our article in the March 1, 2010 issue of BAI Banking Strategies Free Checking Dead? Not at Community Banks