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Question:


I’ve noticed that many banks are starting to do away with the free checking accounts that they marketed so aggressively just a year or two ago. What’s up with that?
-FrustratedConsumer


Answer:


What’s up is that banks used to make money on free checking accounts by paying you no interest on them and collecting interest when they lent your money out. With interest rates effectively zero on short-term borrowings of all sorts, banks can get their hands on money for nothing, without having to process checks, deposits and other transactions in your account.
 
Another reason why there are fewer free checking accounts is that there are fewer banks. The financial crisis led to the demise of such deposit-taking institutions as Washington Mutual and Wachovia. Less competition means less need to offer incentives to get your business. Also, the thirst in Washington to increase regulation has led banks to generate as much revenue as they can from whatever activities they can while cutting expenses as much as they can.
-Conrad de Aenlle



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