If you're looking for free checking, think small

Portion of a check

A new survey finds that America's largest banks are dumping free checking like a stale bagel.

Fortunately for consumers, smaller financial institutions are still giving it away for free. How long that will last is anybody's guess.

Moebs Services, an economic research firm, surveyed more than 2,500 banks and credit unions in June and found that nearly two-thirds (65%) of the nation's large banks still offer free checking, down significantly from 96% at the end of 2009.

But among the smaller banks, more than two-thirds (71%) still offer free checking, down just slightly from 78% in 2009.

Free checking was one of the first perks that big banks like Bank of America, Chase and Wells Fargo kicked to the curb as a belt-tightening measure in the wake of financial reform.

Chase and Wells Fargo went a step further and launched pilot programs to see if customers would mind donating $3 a month for the privilege of using their debit card.

The whip came down when the Fed reined in overdraft fees in 2009.

Next month, the Fed cuts in half the maximum interchange or swipe fee that banks can charge merchants for each debit card transaction, from 44 cents to 24 cents per swipe.

The bank's actual cost of a debit transaction? About 4 cents.

While the bigs figure they can save more by charging for basic checking than they stand to lose in disgruntled customers, banks and credit unions with assets below $50 billion aren't making any rash moves.

At least not yet.

James Maloney, chairman of Mitchell Bank in Milwaukee, told American Banker that charging for checking is "just not going to be possible for us. … We'd lose the accounts."

The small fries say fee checking is driving customers their way.

They don't welcome the reforms either, but they appreciate the rare opportunity to offer a perk that the "too big to fail" crowd doesn't.

But some observers, including Louis Hernandez Jr., who as CEO of Open Solutions sells software to small banks, says his customers have fewer resources with which to adapt.

He's not optimistic that free checking is going to be around for long.

"The big banks can already see a strategy that works. The small banks, they can see that they don't have an alternative yet," Hernandez told American Banker. "If we keep offering it for free, we're going to go out of business."

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