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Focus on finance: When is ‘free’ really free?

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Column by Michael Bateman

Question: When I read the words free checking (or other services) on a bank or credit union sign, I am leery. Is there really such a thing?

Answer: There’s no better price than free, or so it would seem. But how often do customers today actually receive anything for free? As you might imagine, it’s not very often.

Because of possible abuse, there are very specific guidelines about use of the word “free” in advertising. The offer of “free” merchandise or service most often is used as a promotional device to attract new customers and likely is provided only with the purchase of some other product or service. Most common are the buy-one-get-one-free offers that have become popular and useful marketing tools.

But are there truly any products or services out there that you can get for free?

Well, yes and no.

For example take a financial service such as a checking account, many of which are advertised as free. Upon closer examination, most of these “free” checking accounts require the customer to maintain a set minimum balance at all times. If the account balance slips below the minimum, even for one day, a monthly service fee may be assessed.

Other “free” checking accounts require active use of additional financial services from the same institution, such as taking out a loan, using a debit card associated with the account or online bill payment services. The financial institution normally receives interest payments or a fee when these services are engaged.

It should be noted is does cost the financial institution to keep each checking account open and operational. Checking, or demand deposit accounts, are a convenience for customers who may withdraw money from their accounts at any time. Most of these accounts are checking and savings accounts. Demand deposit accounts now are a major component of a nation’s money supply because the money in such accounts is available to purchase goods and services and to satisfy debts.

Financial institutions have to hold demand deposits in a secure manner; pay for the infrastructure and technology for branch offices and ATMs and absorb the accounting costs for managing such accounts.

Depositors, in turn, provide financial institutions with a benefit, as well. The money in demand deposit and other deposit accounts provide the capital used for loans. As these loans are repaid with interest, depositors have access to their money and, in the case of savings accounts, receive dividends.

However, in the current low-interest-rate environment, many financial institutions have to supplement their income from loan interest payments with fees on checking accounts and other services. These fees could run as much as several hundred dollars a year or require average minimum account balances of $2,500 or more.

The best of both worlds is to find a truly free checking account that requires no minimum balance, no monthly service fee, no per check fee and provides a free debit card. Only a few financial institutions still offer these no cost checking accounts.

If you’re interested is saving the hundreds of dollars a year a checking account could cost, look for fee-free checking without all the other restrictions and requirements imposed by some financial institutions.

There still are free checking accounts out there. You just have to look for them.

Michael Bateman is vice president of marketing at Fort Knox Federal Credit Union.