Free Checking, Low Overdraft Fees Hard to Come By, Study Finds

Most large credit unions offer free checking and charge median overdraft fees below the national median, but smaller credit unions largely do not do those things, according to new data from financial institution research firm Moebs Services. Finding a financial institution that offers both free checking and low overdraft fees was especially a problem for Gen Z and millennial consumers, the Lake Forest, Illinois-based company said.

The survey of 2,917 financial institutions found that 69.1% of credit unions with more than $5 billion in assets offered free checking accounts. Credit unions that size also had a median overdraft fee of $28, which was below the national median of $30.

Community banks with assets less than $100 million had a median overdraft fee of $25, and 29.3% offered free checking.

“Every other group either offered overdraft prices of $30 or more and/or no free checking,” noted Moebs Services Economist and CEO Michael Moebs.

The median overdraft price at financial institutions that had at least $25 billion in assets was $35; only 0.1% offered free checking, Moebs added.

“Most of these financial institutions have been shedding consumer checking accounts since 2013, when Bank of America dropped free checking, restricted overdraft services and increased their overdraft price,” the report said.

The study also reported that $30 is the fully elastic overdraft price, meaning that it is the point at which consumers become motivated to look for a better price elsewhere. That may especially be the case for Gen Z and millennials, the study said.

“Millennials and Gen Z want a financial service home. That financial home starts with one service — a low-cost checking account,” Moebs said.

“Those [financial institutions] with low fee prices and sticking with a simple, efficient, singular approach will gain in revenue and carve out a position of trust with the consumer.”

Over the past five years, more financial institutions have sought to have two or more services per consumer household, the report added said. “Depositories offering just a single service with low fees, efficiently done, are gaining checking accounts and revenue,” it said.

The report follows another Moebs study, which found that the median overdraft fee was $30 at credit unions and $32 at banks in 2018, representing a $1 increase at credit unions and a $2 increase at banks. The overall national median for depository institutions remained at $30, which was the same as during the Great Recession, the study noted. But the rise for credit unions and banks in 2018 was still notable.

“This is the first time in 19 years banks and CUs increased the OD price at the same time,” Moebs Services Director of Research and Clients J.V. Proesel said.