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September 2nd, 2009

The end of free checking accounts?



According to this post at WalletPop, the free checking account as we know it is likely at the start of its death throes as banks need to explore more ways to maintain a good profit margin.

WalletPop talked with Hank Israel, a director at Novantas, a consulting firm for the banking and credit card industry, who explains the primary reason why:

…banks are already adjusting to new rules, like making it harder for banks to raise credit card interest rates without warning, from the Credit Card Accountability Responsibility and Disclosure (CARD) act. Some of the CARD rules went into effect in August; the rest will start in February. “Some of these regulations are going to limit the banks’ ability to charge overdrafts,” says Israel, meaning that banks are already trying to think of new ways to make their profits.

Most banks already offer free checking, so there’s little or no potential growth in that category of banking service, and aside from overdraft fees, little profit margin as well — particularly when a lot of banks don’t have very stringent (if any) minimum-balance requirements.

It’s an interesting interview that also touches on some ways that checking accounts might evolve over time, including various levels of service at different prices. Read the whole thing.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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