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Thoughts On Checking Account Fees

August 11, 2011

Given the current challenges that financial institutions are facing, free checking has been proclaimed a soon-to-be thing of the past.  Many banks and some credit unions have already moved away from free checking, but many credit unions are wrestling with the idea.  Here are a few of the arguments we’ve heard against charging for checking and some questions to consider.

“Charging for checking will decrease member satisfaction and drive some members away.” Would it really decrease member satisfaction when so many other institutions are doing the same thing?  What are your members’ alternatives?  Would it be a bad thing if it drove unneeded funds away?

“If we don’t charge for checking we will attract more checking accounts.” Can your credit union afford to attract additional funds?  Many are already awash in cash which is eroding the net worth ratio.

“We want more checking accounts because they are a great source of inexpensive funding.” Even checking accounts that pay no dividends have expenses associated with them.  The WSJ reported that more than half of all checking accounts are unprofitable.  It costs most banks between $250 and $300 a year to maintain each account, according to a report by Celent.  Do you know what each account costs your credit union, including all the components like bill pay, statements, NCUSIF expense, etc?

“We want more checking accounts because, even though they may be loss leaders, we make up for it with the other products those members purchase from us.” Can you quantify the additional products that are purchased by checking account holders?  According to a recent bank study by J.D. Power and Associates, only 43% of customers who purchased an additional banking product made that purchase at their primary bank.  Are the additional products profitable enough to make up for checking account losses?

The changes that are already underway in other financial institutions could cause significant increases or decreases in your checking deposits.  The important thing is to have a thorough understanding of your membership and the costs and benefits of charging or not charging for checking.  Only then can the best decisions be made for your credit union.

Sources:

  • End Is Seen to Free Checking, WSJ, 6/16/10
  • J.D. Power and Associates Reports:  Shopping and Switching Rates Increase among Retail Bank Customers As Competition in the Industry Intensifies, J.D. Power and Associates, 3/1/11
Showing 2 comments
  • Mark Arnold

    One other factor to consider when considering your checking account offering is your market. If all the other institutions in your area are charging for checking and you are not, then that is a great differentiation consideration. You can zig while the marketplace zags, thus setting you apart.

  • Mike Bartoo

    Excellent points and the foundation in this decision is based upon KNOWING the cost/value of a checking account to your CU, as well as how your checking account members do other business with you. Most of the arguments noted above are common assumptions. The decision about whether or not to charge for checking really needs to be based upon the data associated with those arguments, the marketplace (as Mark mentions) and your strategic objectives. If you KNOW that a checking account is going to cost you $200/year but you also KNOW that, historically, you’ve been able to cross-sell 2 other products/services that offset that cost then you can make an educated decision.

    It’s assuming that the checking account is low-cost funds, assuming that you’ll cross-sell additional products/services and assuming that you want more checking accounts that will lead to significant profitability issues. After all, we all know what happens when we “A-S-S-U-M-E”, right?

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