Comments on: A Checking Account Wants to Be Free

By: anonymous

anonymous — Tue, 10 Aug 2010 20:56:21 +0000

You can always decline overdraft protection.
Also, it would seem to me that folks with higher amounts of money in their checking accounts are actually paying more to the bank. The interest rate difference between the rate that the bank gets and that it gives you, should be sufficient enough for checking account management costs. No?

By: TFB

TFB — Sun, 04 Jul 2010 17:26:25 +0000

K3 – By tight budgets I meant not having a cushion in a checking account. If the balance fluctuates around $100, it requires a much higher level of effort to properly manage one’s money than if the account always has enough money to cover an entire month’s bills even if all come due on one day. The cost associated with covering an overdraft is maybe less than 10% of a typical $35 overdraft fee. The rest goes toward subsidizing free checking accounts for all. It’s not the same as your health care risk pool analogy.

By: K3

K3 — Sun, 04 Jul 2010 17:04:41 +0000

While agreeing with the conclusion of this post, I disagree with the following, which sounds quite socialistic: “People on tight budget[s] or those who don’t watch their balance carefully pay a much bigger share of the cost than others. That’s not fair, is it? The cost should be shared more equally among all customers. If that means there has to be a monthly fee, so be it.”

First, there’s the false premise or non sequitur that those on a tight budget necessarily incur such fees. Being on a tight budget is no indication that you fail to properly manage your money, which is the real source of incurring such fees, as you correctly state regarding “those who don’t watch their balance carefully.”

Second, it is unclear why you feel that those who act irresponsibly, in the form of failing to properly manage their financial affairs and thus incurring such fees, should not bear the associated cost. This “share my pain” argument is highly reminiscent of the argument from the all the obese and other sickly folks who have irresponsibly managed their own health but now want all the healthier people to be in their insurance pool to (unfairly) absorb their disproportionate burden on the insurance program.

By: Martin Farley

Martin Farley — Wed, 23 Jun 2010 00:09:52 +0000

I don’t believe that there is any simple connection between overdraft fees and free checking. Banks just balance the checking account costs with all their income and their other aims.

Since I first had a checking account 35 years ago, banks have gone in cycles on checking. There is a stage when bankers solemnly say that checking costs money and they have to recover the costs. Then, a stage follows when they decide that free checking is a way to attract customers who will do more profitable things, like borrow money. Then, it cycles back to the solemn statements about the cost of checking.