New Research Finds that Most Consumers will Have Difficulty Avoiding Rising Bank Checking Fees Unless they Directly Deposit Income Checks

Few Big Banks Offer Low-Cost Options to Small Depositors

Washington, D.C. (October 16, 2012) -- Consumers are having difficulty avoiding rising checking fees unless they directly deposit regular income checks such as paychecks, pension checks, and Social Security checks, according to a new report by the Consumer Federation of America (CFA).  Many interest and noninterest-bearing checking accounts require consumers who are unable to maintain average balances of $1,500 -- a large majority of checking customers -- to be charged regular monthly fees that total as much as $300 annually. Just triggering one debit card overdraft, having one check returned for insufficient funds, and having one deposit rejected could add an additional nearly $100 in charges to the annual cost of using a checking account, CFA found.

CFA performed research analyzing both bank checking account characteristics and consumer attitudes towards checking accounts as part of their analysis of the 25 largest banks according to the number of branches. The research -- entitled "Can Consumers Avoid Checking Fees?"-- revealed a great diversity of checking policies and prices at the 25 banks.  For example, the following banks each offer free checking with no waiver requirements – PNC’s “Free Checking,” M&T Bank’s “Free Checking,” First Citizens Bank’s “Free Checking,” Huntington National Bank's “Asterisk-Free Checking,” and New York Community Bank’s “My Community Free Checking” and “My Community Interest Checking.”  At the other end of the scale, consumers would have to keep $25,000 in combined accounts at BB&T to avoid paying $25 per month for the Elite Gold interest-bearing account or at Keybank for the “Key Privilege” account.

“Banks are increasing fees and balances needed to avoid fees,” Jean Ann Fox, CFA's Senior Adviser for Financial Services noted.  “These higher fees and hurdles to avoid fees are especially challenging to the 45 percent of accountholders who maintain low balances and are most likely to overdraw their accounts.”

Most Consumers Maintain Relatively Low Checking Balances

An analysis of Raddon Financial Group survey data on consumer checking accounts found that nearly three-fifths (59%) of respondents saw checking balances fall below $500 in a typical month, with over one-third (36%) saying their balances fell below $100.  And less than one-quarter (24%) said they had been able to keep balances above $1,000.  The Raddon survey was conducted in the fall of 2010 and is based on 1,155 responses from a randomly drawn sample of a nationally representative direct mail panel.

The survey found that those with low balances were the most likely to overdraw their accounts.  Two-fifths (40%) of those with low balances below $500 said they had overdrawn their checking account in the past two years, while only 3 percent of those with low balances above $1,000 said they had done so.  Thirty percent of all respondents said they had overdrawn their checking account in the past two years.

Checking balances were highly correlated with income.  For example, those with annual incomes below $20,000 were seven times more likely to have low balances under $100 than have low balances of at least $1,000.  And, those with annual incomes at least $100,000 were nearly three times as likely to have low balances of $1,000 or more than have low balances of less than $100.  Moreover, nearly four-tenths (38%) of the low-income group reported overdrawing their account compared to less than one-fourth (24%) of the high-income group.

The likelihood of directly depositing income checks was also highly correlated with income.  Only 25 percent of those in the lowest income quintile used direct deposit.  That figure was 52 percent for the second quintile, 66 percent of the third quintile, and over four-fifths of the upper two quintiles.  These differences are important because a large majority of big banks will waive minimum or average balance requirements if income checks are directly deposited at least monthly.

“The families who most need free or low-cost checking are the least likely to be paid by direct deposit, either because their employers do not offer the service, they work in short-term positions, or because they are unemployed,” noted Stephen Brobeck, CFA's Executive Director.  “Consumers who cannot waive fees through direct deposit and who do not have a comfortable cushion in their accounts at the end of the month pay the full freight for checking accounts.”

Banks Offer Diverse Checking Accounts

CFA surveyed checking accounts at the 25 largest banks by number of branches, collecting information on each bank’s budget or all-electronic account, mainstream non-interest checking account and the lowest-cost interest-bearing account.  One positive finding of this research is that nearly all bank websites now include both useful summaries of each checking account and also links for fuller descriptions of the accounts including monthly fees, though finding details on overdraft fees and practices sometimes required further searching.

  • Budget Checking:  Nine of the 25 surveyed banks offer accounts described as "budget" or "basic."  These accounts cost $7 or less a month even when checks are not directly deposited and any required minimum balances are not met.  Most of the free accounts, listed in paragraph 3 of this release, fall into this category.
  • Electronic Accounts:  Bank of America, Fifth Third, and Keybank offer electronic accounts that usually require customers to conduct all banking at ATMs or online.  Monthly fees can be avoided, depending on the account, by maintaining a $500 minimum balance or directly depositing income checks.
  • Non-Interest Checking:  Most consumers utilize non-interest bearing checking accounts, which we found at 24 of the 25 banks surveyed.  Monthly fees on these accounts, when minimum or average balance requirements are not met, are usually $9-10 but were found to be as high as $15.  CFA’s research found that nearly all banks will waive these fees if the minimum or average balance requirements are met which most commonly is $1,500, or if funds are direct deposited.  Additionally some banks will waive the fees if a minimum number of transactions occur during the billing-period.
  • Interest Checking:  All surveyed banks offered at least one account that received interest on deposits. These accounts generally are subject to higher minimum/average balance requirements and monthly fees than non-interest accounts. These average balances are as high as $25,000 at BB&T and at Keybank, while the monthly fees are $25 per month at Bank of America, Chase, BB&T, TD Bank, and Keybank.

“As the FDIC’s 2011 Survey of Unbanked and Underbanked Households found, high fees and minimum balance requirements are an obstacle to account ownership for some unbanked consumers, especially for households who had recently been banked,” Fox noted.   “Since the FDIC survey was conducted before the rash of fee hikes and higher minimum balance requirements in late 2011, it is likely that rising fees and higher thresholds to avoid fees are a serious barrier to bank account ownership for families struggling in this economy.”

Penalty Fees and Features:


CFA collected information on the fees charged by banks when consumers overdraw an account, have a check rejected for insufficient funds and make a deposit returned for insufficient funds.  Surveyed banks charge overdraft fees that range between $33 and $38 per incident when the bank covers a transaction on insufficient funds.  Twenty banks limited the number of overdraft fees per day from three (JPMorgan Chase and U.S. Bank) to eight (BB&T), while five banks set no limit on the number of overdraft fees in a day.

Banks charge their customers when they deposit someone else’s check that bounces.  All but one bank posted a deposit item returned (DIR) fee which is charged when a consumer deposits a check to her account that is drawn on insufficient funds.  DIR fees ranged from $6 to $20, with typical fees in the $10 to $15 range.

The steep cost of making mistakes with payments and deposits is reflected in the CFA survey chart showing the cost of just one overdraft, insufficient funds payment or returned deposit at each bank for each surveyed account.  Even when monthly fees are waived, these three penalty fees can add up to $91 to the annual cost of an account.  When combined with the monthly fee for consumers who cannot waive those fees, accounts can cost up to $382 (Bank of America Advantage with Tiered Interest, BB&T Elite Gold, and TD Bank Premier with paper statements).

“Bank penalty fees ratchet up the cost of bank account ownership for consumers who overdraw their accounts or who deposit someone else’s check that was drawn on insufficient funds,” Fox stated.  “Overdraft and NSF fees are especially risky for consumers who keep a low balance in their accounts.”

Advice to Consumers

Given the diversity of accounts and their costs, it is essential for consumers to know what they are paying for checking, to know how they can avoid unnecessary fees, and   understand that there are additional options if the cost is too great.

Consumers should know that there are ways to reduce checking costs with the accounts they currently have. Banks are required to have consumers’ permission to charge overdraft fees triggered by purchases and withdrawals using a debit card. If consumers refuse to opt-in to these fees, debit card purchases or ATM withdrawals will simply be denied by the bank at no cost to the consumer. Nonsufficient funds fees, however, may still be charged if there is not enough money in the account to cover the transaction if made by paper checks and electronic payments. To avoid nonsufficient funds fees, consumers should keep a cushion of money available in a checking account, link checking to savings accounts, and pay close attention to the timing of deposits and payments.

By switching to lower-cost accounts, directly depositing pay or benefit checks, or utilizing the account differently, consumers may be able to substantially lower the cost of checking with their current or a new bank or credit union.  Consumers should avoid most interest-bearing checking accounts, unless they plan to maintain a large combined deposit at the bank or meet other conditions to avoid monthly fees, such as having a mortgage with the bank.  Just one monthly fee will wipe out interest earned for the year.

The report can be found here: Can Consumers Avoid Checking Fees?

For more information:

2012 CFA Survey of Big Bank Overdraft Loan Fees and Terms

CFA Brochure on Overdraft Opt In Policies


Jack Gillis, 202-737-0766

Jean Ann Fox, 928-772-0674


The Consumer Federation of America is a nonprofit association of nearly 280 consumer groups that was established in 1968 to advance the consumer interest through research, advocacy, and education.