Rethinking 'free' checking accounts

STAYING AHEAD

September 20, 1992|By JANE BRYANT QUINN | JANE BRYANT QUINN,Washington Post Writers Group

New York -- It's time to rethink your checking account. An account that made sense when banks were paying 5 percent on daily balances may be a loser now that rates are so low. The average yield on interest-paying checking accounts has dropped to 2.25 percent, less than half what they paid a year ago, according to the Bank Rate Monitor. At commercial banks around the country, it's 2.18; at S&Ls, it's 2.33.

Unable to promote high rates any more, banks are turning to ads for so-called free checking accounts. But they may carry unexpected fees. Many of these ads will be illegal when the new truth-in-savings law takes full effect in March.

So what is your strategy for finding the best checking account today? First, don't get taken in by false claims that you're banking free. And second, study fees as closely as you do interest paid on your balances. Instead of an interest-paying checking account, you might be better off with a combination of no-interest checking and a savings account.

The first step toward better checking is to take a look at your bank statements for the past three months. Compare the interest you earned each month with the fees you paid. The fees may have eaten up all the interest, and more.

Interest-paying checking accounts typically require minimum balances in the $500-to-$1,500 range. If you fall below the minimum, you'll probably be nicked for $5 or more. If you often fall below that minimum, you definitely have the wrong account.

You might also be charged a fee for every check you write, a monthly maintenance fee and fees for using the ATM.

Checking accounts that pay no interest require smaller minimum balances (in the $200 to $800 range) and levy lower fees. So they're cheaper to maintain.

Say that you have interest-paying checking, at 2 percent interest and a minimum balance of $1,000. You might earn more money by switching to non-interest-paying checking with a $200 minimum and putting the other $800 in a savings account paying 3 percent.

Some banks waive all checking charges, as long as you keep a certain minimum sum in a combination of checking and savings deposits.

Fees might also be cut if you take a truncated account. The monthly statement on truncated accounts lists deposits and withdrawals, but your actual checks are not returned. If you need a copy of a check, the bank will send it to you, either free or, increasingly, for a fee.

As for the advertisements for free checking that are blitzing the country today, some are honest, others aren't. The new truth-in-savings law technically takes effect this week, but banks have until March 21 to bring their ads into compliance. Some institutions apparently plan to misuse the word "free" until the last moment the law allows.

So it's still up to you to police ads for truth. A checking account is not free if there's a fee for falling below a minimum balance, fees for using the ATM machine, a monthly maintenance fee or a fee for writing checks. Nor is it free if, to get the account, you must have other accounts with the bank.

One way to save money is not to order checks through your bank. Banks typically charge $9 to $12 for 200 basic checks. Two companies sell them for half the price, fully imprinted with your name, address, bank and account number. The introductory cost: $4.95 for 200 single checks and $5.95 for 150 checks with carbon copies. Reorders cost more. Call Checks in the Mail in Irwindale, Calif., (800) 733-4443 or Current Inc., in Colorado Springs, (800) 533-3973.

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