CHECKING ACCOUNTS: THE WORKHORSE OF PERSONAL FINANCE

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CHECKING ACCOUNTS: THE WORKHORSE OF PERSONAL FINANCE

Published by sam - 22/08/07 - 01:08:32 am

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Almost no one enters the world of personal finance without first passing through the portals of a bank to open a checking account. Like money, checking accounts are one of the necessities of financial life; they have been so since the end of the World War II. Today, according to Federal Reserve estimates, some 40 billion checks are written annually to transfer more than $30 trillion in salary payments, tax refunds, utility bills, credit card payments, grocery bills, and other transactions.

Until the mid-1970’s, checking accounts were relatively simple.
They all did the same thing: transferred money from one party to another. And regular checking accounts were inexpensive. When Consumer Reports surveyed 35 bank checking accounts in 1975, it found that monthly maintenance fees ranged from 25 cents to 75 cents. Pre-check charges, which may or may not have been imposed along with the above-mentioned monthly fees ( depending on the bank), commonly ran from 10 cents to 15 cents. According to a 1973 American Bankers Association study, an estimated 13 percent of all U.S. banks offered totally free checking with no minimum balance requirements.

The middle of the 1970’s, however, marked the beginning of a turbulent period of change for banking and created a multitude of new options for checking customers. Interest-bearing NOW checking accounts were born; savings institutions were allowed to offer checking, “overdraft checking” kept depositors from bouncing checks. Checking accounts were linked to other bank accounts and services. And technology brought such conveniences as automated teller machines (ATM’s) and banking by telephone and computer.

The current confusing array of choices is reason enough for consumers to shop carefully for the checking account that best serves their needs. But there are also sensible financial reasons for learning about what the market has to offer.

Between 1980 and 1985, checking fees rose at a rate of 25 percent per year. By the mid-1980’s, the Federal Reserve estimates, Americans were paying more than $10 billion a year in bank fees. According to a 1988 Consumer Reports survey of 120 banks, thrifts, and credit unions around the United States, depositors who kept an average daily balance of $500 and wrote only 10 checks per month paid an average $92 a year in fees on the account. In one unusual case, such a customers would pay an estimated $216 for the year.

Bank deregulation in the early 1980’s brought on a host of other complaints: long lines to tellers, increased automation and decreased customer contact, and the growing perception that big banks no longer cared about the small checking account customer.

Although there is abundant evidence that the perception is accurate, all banks do not treat their customers the same way. Many smaller neighborhood commercial banks and savings-and-loan associations (S&Ls) charge some of the lowest fees and offer some of the highest interest paid on checking. The 1988 Consumer Reports survey also suggests that depositors frequently can obtain better checking account deals at a credit union than at a commercial bank. According to that study, the typical customer who kept a relatively low account balance of $500 paid about $16 a year for checking at the credit union.

Small community banks may also be more people-oriented than large urban and regional banks tend to be. One of the best examples exists in the tiny agricultural town of Cut Bank (population 4,500), located in north central Montana. The first National Bank of Cut Bank is reported to have friendly tellers who will call taxis and jump-start cars whose batteries have gone dead is subzero temperatures. They even use their own jumper cables.

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August 22, 2007 | Checking Accounts |

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