Regulatory changes threaten to end free checking accounts at banks. But don’t despair. More than a third of credit unions in the United States plan to continue offering the perk for the foreseeable future.
This is all the more reason to join a credit union in 2011. The best bets out there for convenience are credit unions that offer shared branching and access to a large nationwide network of surcharge-free automated teller machines (ATMs).
Banks in a bind
Banks have been reeling from two regulatory changes that are threatening their ability to provide free checking accounts. Last August, they lost the ability to slam checking-account holders with overdraft fees without their consent to overdraft protection. On July 21, 2011, the so-called Durbin amendment is scheduled to kick in, severely reducing the 1 percent interchange fee that mid-sized and large banks currently charge for debit card transactions.
These two fee streams are so lucrative, they accounted for all the profits of several banks in 2009. Therefore, it comes as no surprise that there is a nearly universal effort among financial institutions to get Congress to change the Durbin amendment – or, barring that, to find ways to recover that lost revenue.
Banks can either raise minimum balances required for free checking or impose monthly service fees.
The Durbin amendment doesn’t apply to financial institutions with less than $10 billion in assets. In theory, this exempts nearly every credit union. But credit unions worry that they’ll lose interchange-fee revenue, too, because merchants could simply decide not to accept their debit cards. So they have also lobbied to have the Durbin amendment changed.
Credit unions could also drop free checking
The National Association of Federal Credit Unions recently conducted a survey reporting that “nearly 65 percent of credit unions are considering eliminating free checking to help mitigate lost revenue from the debit interchange rule.” This is despite the fact that only three of the more than 7,000 credit unions in the US exceed the $10 billion asset threshold.
But this is a blessing rather than a curse. Even if big banks and two-thirds of credit unions get rid of universal free checking, there will still be thousands of credit unions across the country that will offer it. Credit unions are federally insured nonprofit depository institutions, and thus are often able to get you lower loan rates (for example, low interest credit cards with rates as low as 5 percent) and higher deposit interest rates.
In fact, given their reputation for great customer service and consumer-friendly policies, I highly recommend you ditch your national bank for a credit union.
Keep the convenience, lose the fees
Before you pick a credit union, check on two things.
First, inquire whether the credit union is in a legitimate nationwide ATM network, which grants you access to surcharge-free ATM service at a large number of terminals. The three broadest ATM networks commonly offered by credit unions are MoneyPass, CO-OP, and Allpoint, all with more than 20,000 ATMs. The three largest banks in America, as of the end of 2009, were Bank of America, Chase, and Wells Fargo, with 18,000, 15,400, and 12,363 ATMs, respectively.
Second, see if they are members of CU Service Centers. This is a consortium of credit unions that share branches with each other, allowing you to access branch services away from home. With 4,234 branches nationwide, this network has nearly the branch presence of Chase and Bank of America, and nearly half the branches that Wells Fargo does. At the end of 2009, the three banks reported branch counts of 5,100, 6,000, and 10,000, respectively.
Here's a chart of how they stack up:
|CU Service Center||4,234|
|MoneyPass ATM Network||20,000|
|CO-OP ATM Network||28,000|
|Allpoint ATM Network||43,000|
|Bank of America||18,000||6,000|