How Free Checking Really Works

Image shows two people sitting at a desk; one is setting up the other with a no-fee-checking account

Image by Maddy Price © The Balance 2020

Looking for a new free checking account? It's not as easy as it used to be, but fee-free accounts are still available. Here are some ideas on where to find your next account and things to consider as you compare banks.

Where to Get Free Checking

There are two ways to get free checking these days:

  1. Find a bank or credit union that offers a truly free account
  2. Qualify for fee waivers

Of course, #1 takes the least amount of effort—after you've opened the account. But finding free accounts can be a challenge. Where do you stand the best chance of finding a free account? Online banks, small banks, and credit unions are your best bet.

Keep in mind that "free" only refers to standard services. If you do certain things (request a wire transfer, bounce checks, and so on) you'll have to pay fees.

Online banks are the most competitive for most account types—not just free checking. They pay higher interest rates on savings accounts, they keep fees low, and they might even pay interest on money in your checking account. A few free online checking accounts include:

  1. The Online Checking Account from Capital One 360
  2. The Interest Checking Account from Ally Bank

Both of the accounts above pay interest on your deposits.

Small banks are also competitive. These are typically local institutions that offer lower fees in order to win local business. In addition, they've structured their businesses differently from big banks—they might not have a gazillion customers to help them operate on a large scale, but they also avoided building a model that depends on other revenue streams that have dried up for big banks. To find a local bank, search locally and check local publications. Banks often advertise specials.

Credit unions are customer-owned organizations that share a similar position with small banks. Because all of the account holders "own" shares in the bank (as opposed to a company that wants to maximize profits), there's a good chance that you can find free checking. In addition, credit unions are tax-exempt organizations, so they have a little bit more to work with. The only minor challenge of working with a credit union is that you have to qualify to join one; that's often easy (you might qualify based on where you live, where you work, or some other characteristic).

Fee waivers are another option. If you can't find an online bank, small bank, or credit union that meets your needs, you might be just fine with a big bank. Most banks waive monthly fees (making it a free account) if you meet certain criteria. You can often qualify simply by having your wages direct-deposited to your account. Other waivers might be available if you keep a large balance in your account or use other products from that bank (getting a mortgage or keeping a large balance in a savings account might do the trick).

Free Checking Features

To make sure you get a good deal on a free checking account, Look around for a free checking offer that has the following:

  • No Low Balance Fees
  • Free ATM and/or Debit Card
  • No charge for ACH and Direct Deposit transactions
  • Free online access to your account
  • Unlimited monthly check writing
  • No minimum check writing amount

Bonus Features

For the best in free checking, see if you can find free checking that also offers:

  • At least one free book of checks (or free checks for life)
  • Free online bill pay
  • Overdraft protection plans (watch out for the costs, and opt-out if need be)
  • No charge to use ATMs outside the ATM network
  • Reimbursement of ATM fees charged to you by another ATM

Free Checking Drawbacks

It is important to know what you are not getting when you use a free checking account. Free checking typically doesn’t pay interest on your money (except for a few online accounts). This is not unique to free checking—most checking accounts don’t pay much. However, you can link your account to a higher yielding vehicle like an internet bank account and earn interest on the cash you’re not using.

It's also possible to find free checking accounts that pay interest. Reward checking accounts pay more than most savings accounts, but your earnings are limited and you have to jump through a lot of hoops.

Another service you might miss is the ability to view your checks after they’ve been paid. Some people like to see a copy of the actual check and the payee’s signature. Free checking usually doesn’t offer this, although a few free checking accounts put images online. My opinion is that you don’t need it, especially for personal accounts. There are plenty of ways to track payments — and you can always order a copy from a free checking account if there’s a particular check you want to track.

Finally, you’re giving up perks like free Stop Payments and Cancelled Check Return when you use free checking. Because I rarely use these services, I do not think you are missing much. However, if your situation is different you may want to shop around.

If you keep a relatively small balance in your checking account, the free checking accounts will probably cost less than an account with premium services. If you ever need to use those services, just pay the small fee in the free checking account.

What if you want to use your account for business purposes? It's best to open an account in the name of your business, but free accounts are harder to find. Again, small institutions are a good place to look, and you can review our page on free business checking for some suggestions.

Why Banks Offer Free Checking

Banks offer free checking as a way to drum up new business. If you go to a branch and ask to open a free checking account, they will be glad to help you. However, they will also try to capture other assets and business from you.

Free checking accounts get customers in the door. Therefore, you shouldn’t be surprised if you get a friendly sales pitch while you’re opening your free checking account.

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