Only One in Five CUs Provide Free Checking, Moebs Services Finds

Credit unions have drastically cut back on free checking accounts in the past two years, and now only 20% offer the product, according to a new study from financial institution research firm Moebs Services.

According to the Lake Forest, Ill.-based company, 74.9% of credit unions offered free checking in 2017 but just 49% offered it at the end of 2018. And to date in 2019, free checking offerings at credit unions have plummeted 59.2%, it added. Today only about one in five credit unions have the product.

“CUs led the surge into free checking in 2001,” Moebs Services Economist and CEO Michael Moebs said, “and now CUs are dramatically dropping the service.”

Free checking was at its peak in 2009, when almost 85% of credit unions and 78% of banks offered the product, Moebs Services reported. Over the last two years, however, many credit unions have ditched free checking.

The high cost of servicing the accounts, combined with low fee revenue, largely due to Durbin Amendment restrictions, were the main culprits in the death of free checking, according to Moebs Services. “Our studies have shown for more than two decades, over 94% of all transaction accounts including free checking are not profitable,” Moebs noted.

“The U.S. government curtailing the interchange fee, or swipe fee, to no more than $0.26 from a free market price of $0.44 was the death knell, especially for free checking,” Moebs exclaimed.

The advent of “relationship checking” — whereby members receive free checking if they sign up for other services — has also accelerated the decline. Bank of America was a notable catalyst in this area in 2014, Moebs noted.

“Starting in 2011, BOA began reducing its checking offerings from 11 to 1. Free checking was eliminated by tying a no charge checking service to an added service such as: another deposit, loan, retirement, wealth management, insurance, securities, or small business,” Moebs Services explained.

“Over 3,000 other banks and credit unions adopted BOA’s relationship checking service and eliminated free checking,” the company added. “BOA made it easy for their employees to sell a service and include checking for a total relationship.”

Credit unions aren’t the only financial institutions abandoning free checking. At the end of 2017, 45.5% of banks offered free checking, but 43.6% offered it at the end of 2018. In 2019, just 19.4% did.

“Yet, free checking is not lost forever,” Moebs said. “The consumer still demands free checking. If community banks and CUs control costs and can charge an unrestricted, free market price for swipe fees, along with transparency in features, then free checking will still survive with some depositories.”