Why Free Checking Is Not No. 1

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LAKE FOREST, Ill.—What’s the most popular checking account offered by financial institutions?

According to a new study, it’s—by far—an interest-bearing account.

The Moebs 2017 Checking survey of 3,817 depositories shows interest checking is offered by three out of four institutions. In comparison to free checking, the runner up, interest checking is offered 42.3% more often than free checking by FIs.

“Currently, interest checking rates are low with an average of 0.05% nationally. Nonetheless, consumer demand remains high, because interest checking generally offers the most features of any checking type,” explained Michael Moebs, economist and CEO of Moebs $ervices. “Pricing is high, with an industry average minimum balance of $1,000 to avoid a $9 monthly fee.”

Several other types of checking accounts are also popular among consumers and depositories (see chart), according to the report. Free, basic, and senior checking are offered by about half of the depositories.

Ten Types

The Moebs Checking Study found there are 10 checking account types. The most popular checking type, interest checking, is comprised of $574 billion in deposits, or 28.7% of the total $2 trillion that is deposited in checking accounts nationally.

“Interest checking accounts dominate both in being offered by a depository and in total deposits nationwide,” said Moebs. “So why offer other types of checking accounts? Each of the other checking accounts offer at least one unique feature, which in turn helps the depository internally and externally against competition.”

Moebs Mike

Michael Moebs, Moebs $ervices

Moebs shared insights into each checking account offering:

  • Interest checking typically has higher minimum balances and monthly fees in comparison to other checking accounts, which brings in consumers with higher balances. Depositories aim to cross-sell to these consumers with higher balances, he said.
  • Free checking allows a depository to easily advertise and gain more accounts. The transaction volume tends to be higher on a free checking account, which results in more interchange revenue and offsets the revenue gained through balance requirements or monthly fees seen on other types of checking accounts.
  • Basic checking requires a national average minimum balance of $500 to avoid a $6 monthly fee. To attract a specific type of consumer other features can be used to avoid the monthly fee, such as transaction limits to increase volume, explained Moebs.
  • Senior checking allows a depository to appeal to an older demographic. Generally, senior accounts are free and sometimes offer a low interest rate. Overall profitability of a senior checking account is one of the lowest, said Moebs.
  • Student/youth checking appeals to Millennials. Typically, these accounts have rewards for using the debit card and are generally free, electronic based accounts. Transaction volume is higher, creating revenue from interchange.
  • Flat-fee checking charges a fixed monthly fee and nothing else. This checking account type was rarely used but is making a comeback. This account attracts consumers who are willing to pay a fee for many features, said Moebs.
  • Rewards checking attracts consumers who are looking to make use of higher transaction volume and account usage. Rewards checking often requires a minimum balance to avoid a fee. Rewards checking comes with higher costs because of the rewards given by the depository – one of the main reasons only one out of seven depositories offer it, said Moebs.
  • Electronic checking is also geared toward the Millennial generation. This account is designed to be completely online, which allows the depository to keep costs low, noted Moebs.
  • Relationship checking is often free with the main objective to maximize cross-sell by creating a relationship between the checking account and other services like loans, wealth management, and more.
  • Second chance checking is for consumers with financial struggles. This account typically charges a nonavoidable monthly fee with no additional features often seen on other types of checking accounts.

What’s The Future Of Checking?

“Once the consumer begins to engage in the economy again, checking balances will decrease,” said Moebs. “However, interest checking will continue to be the leading account offered by depositories and will retain the most deposits in comparison to other accounts. Financial institutions have consolidated checking account types for over five years. Yet, interest checking will always remain a core transaction account service.”

Section: Standard
Word Count: 870
Copyright Holder: CUToday.info
Copyright Year: 2019
Is Based On:
URL: http://www.cutoday.info/THE-feature/Why-Free-Checking-Is-Not-No.-1