Bank fees back in spotlight, but free checking isn't dead

Portion of a check

Steep account fees combined with lousy service pushed nearly one in 10 consumers into the arms of another financial institution last year.

Many jumped from big banks to embrace community banks and credit unions.

First, it was their ill-fated attempts to impose debit card fees.

Now, checking account fees are on the rise as banks struggle to recoup costs as the shakeout after the 2008 financial crisis stripped them of their ability to continue to ding customers in tried-and-true ways.

Almost 10% of consumers last year voted with their feet -- and their cash -- by switching banks, J.D. Power and Associates found in a recent report.

"Bank fees were the straw that broke the camel’s back" for consumers already disenchanted with a lack of customer service, says Michael Beird, director of J.D. Power’s banking services practice.

Many consumers are fed up because they get nothing for the new fees being imposed. All it does is dig deeper into pocketbooks at a time when they’re already feeling a financial pinch.

First, it was Bank of America in the spotlight, following media reports it was testing increased fees on new basic checking accounts. Those tests -- in Arizona, Georgia and Massachusetts -- have been going on for more than a year, with no plans to expand them elsewhere, according to the bank.

Depending on the account and the state, the fees range from $6 to $25 a month with options to avoid them by banking online and maintaining minimum account balances.

Then the media gaze turned toward Wells Fargo, which is expanding a $7 monthly charge on its formerly free checking account. The charge will appear on the June bank statements of existing customers in Georgia, New Jersey, Delaware, Connecticut, New York and Pennsylvania.

Again, customers can avoid the fee by keeping a minimum balance.

Linda Sherry, a spokeswoman for the nonprofit group Consumer Action, says she’s not opposed to banks charging fees to cover checking account costs, but the fees should be "reasonable" and consumers "really need to shop around for the bank with the best costs."

While it may be harder to find free checking, it doesn’t mean those accounts are gone for good.

Bankrate's 2011 Checking Account Survey found just 45% of noninterest-bearing checking accounts were free, down from 65% in 2010.

If you follow our advice, you can find a great free checking account.

Our 8 smart moves will show you what to look for in a quality free checking account, including no monthly minimum balance requirements.

One option is online banks, such as Ally and Incrediblebank.

Ally Bank pays interest on its free checking, currently 0.40% APY on balances of $15,000 or less. The portion of balances greater than $15,000 earns 0.75% APY.

Incrediblebank offers free checking that pays 1.00% APY on balances to $249,999. Balance portions above that earn 0.50% APY.

Another option is rewards checking accounts, which can pay healthy interest rates if customers meet certain minimum requirements, such as making a dozen debit card transactions and signing up for eStatements.

At Consumers Credit Union in Waukegan, Ill., where membership is open to anyone who pays a small fee, the Free Rewards Checking account pays 4.09% APY on balances up to $10,000.

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