Free checking can cost you a pretty penny

Banks are aggressively promoting free checking accounts. But some customers are discovering that free often comes at a price.

While customers no longer have to pay fees if their balances drop below a minimum, many who open these accounts often end up paying more in other charges, like those for bouncing checks or using automated teller machines. Without a minimum balance requirement, people may be careless about keeping enough in their accounts to avoid bouncing checks.

"The fact is, free checking accounts don't turn out to be free for a lot of people," said Gary D. Stein, a partner at the Capital Performance Group, a Washington consulting firm focused on banking. "Banks make a lot of money off these accounts."

Some smaller banks, like Zions Bancorp., say though that's often true of the bigger institutions, it isn't the case at Zions.

"Our checking is just that — it's 100% free," said George Hoffmann, executive vice president of retail banking at Salt Lake-based Zions. "It has no additional charges that aren't experienced by any other account that we have. It has no minimum balance. And we have a lower service charge if they run out of money in their account, lower than really anybody in the state."

Banks make money from free checking customers in three ways. Because such accounts generally pay no interest, they provide a cheap source of money for the banks, which can then reinvest the money elsewhere, Stein said. The banks also use the accounts to attract new customers who will then buy their other products, from insurance to mortgages. Banks also charge many fees, particularly for covering bounced checks.

Zions' Hoffmann acknowledged that implementing more services, like debit cards, ATM machines and Internet banking, comes with a price. So does bouncing a check or including a safe deposit box or notary service to your account portfolio. But, he said, "Zions is not looking for our various delivery points to be revenue sources for us.

"You tend to see that kind of stuff in the larger national banks," Hoffmann said. "We pride ourselves on being the local community bank, and we feel like we should walk the walk instead of just talking the talk."

Bank One's branches in Utah are also hitting the pavement with their checking options, according to the bank's Utah president, Craig Zollinger. Bank One offers many different kinds of checking accounts, not all of them free. But free is not always the key, he said. The key is to make sure customers get the checking account that best suits their needs.