Free Checking Lives, With Sneaky Fees

It's quite reasonable to assume that free checking is on the Endangered Banking Benefits list. But it's not.

According to a survey by MoneyRates.com, 35% of checking accounts examined don't charge monthly service fees. While that's down a bit from 38% earlier in the year, it's still a sizable percentage.

But remember, banks are not offering free checking out of the goodness of their hearts. They're in business to make money -- off you.

Fees That Make "Free" Worthless

New reforms and regulations have hindered banks' ability to earn revenue on some parts of their business. As a result, they've simply shuffled around their charges and are making up the difference elsewhere.

Onerous overdraft fees: For example, they're raking in around $38 billion in overdraft fees, charging a median fee of $35 per incident, when the median amount by which we overtax our account is just $36!

Check-clearing chicanery: Banks have also made more money by applying those overdraft charges in clever ways, ordering transactions to maximize the amount we pay. Here's a simple example: Imagine that you have $500 left in your account, and you write five checks, for $400, $50, $50, $50, and $50. You've written $600 worth of checks, so clearly, you've overdone it. The bank could process your four $50 checks first, and your account could cover them. Then the $400 check would bounce, triggering a fee, of perhaps $35. Instead, though, many banks will process the $400 payment first, so that you run out of funds sooner and it is able to charge you two $35 fees.

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Taking before giving: Most banks tend to post withdrawals from your account before they post deposits too.

Tying up your cash for paltry interest rates: While monthly fees can add up -- especially since the average such fee is $11.75, totaling $141 per year – trying to qualify for free service can be harder on your finances than paying a monthly toll. Consider, for example, that the average minimum balance to open an account is $413 but, the average minimum balance required for free checking is a whopping $4,123. If you parked that $4,000 elsewhere and earned 1% on it, you'd collect $40. Even if you couldn't find higher rates for your cash, what would happen if one month you had an expense that required a large withdrawal? Fall below the minimum account requirements and you'll have to pay for the monthly checking fee anyway.

What's Spelled Out in the Fine Print

A recent report from the Pew Charitable Trust looked at the United States' 10 largest banks and concluded that they're putting "consumers at financial risk" by charging them more than various services are worth.

Good luck fighting the bank over fees: "More than 80% of accounts examined contain either binding mandatory arbitration agreements or fee-sharing provisions that require the accountholder to pay the bank's losses, costs, and expenses in a legal dispute regardless of the outcome of the case." And if you find the fine print hard to understand, that may be by design, too. Banks are increasingly facing pressure to give consumers more information, in transparent, plain English.

Sure, it's great to find a free checking account -- but take some time to compare your options and choose the best deal for yourself. Remember that while there may be no monthly service fee, the bank might be collecting much more from you in other ways. Check out credit unions, too, as a recent Bankrate.com study found that 76% of them offer free checking with no strings attached.

Longtime Motley Fool contributor Selena Maranjian holds no position in any company mentioned. Click here to see her holdings and a short bio.