Behind the simply checking account is a grand story about where our economy has been and is heading. The checking account is the gateway drug into the banking system. Many financial institutions lure you in with checking services and then sell savings, credit cards, mortgages, auto loans, insurance, and investments. These additional accounts are critical especially because financial companies don’t really make much money on the checking account any more. Part of that is due to financial regulations. And part of it is simply because interest rates are so low. Here are three examples of what the checking account is telling us about the economy:

The decline of free checking:

banks offering free checking

Getting a free checking account is harder and harder.  Between new regulations and struggling bank revenue, the free checking account is being phased out.  To even get one today you usually need to have a certain balance level or spending amount.  Having an account costs the bank money, as much as $380 a year just to keep the thing running.  All those branches and ATMs cost money.  This well represents the new economic reality for financial institutions: doing business costs more and making money on a dollar of customer deposits is a lot harder.  That cost is being passed along to the consumer partially in the decline of free checking.

Overdrafts are in decline:

According to MOEBS Services which monitors such things, the frequency in which we overdraft has trended downwards ever so slightly.  In the middle of 2012 the average overdraft activity was around 7.4 overdrafts per account.  By the same period in 2013 the number is down to 7.0.  That’s small, but it’s indicative on an improving economic situation.  More jobs, more income, less overdraft.  During the same period the average cost for an overdraft ticked up a buck from $29.  Perhaps most interestingly, if you need  $100 right now it’s cheaper to go to a payday lender than it is to overdraft.  Now who’s pricy?

Checking balances are increasing:

In 2007, the average checking account held less than $800.  By 2011, the number had climbed to $3700.  And in 2013, almost $4500.  There are a couple of reasons for this.  One is the higher cost of the checking account.  People need to keep more money in the account in order to avoid fees.  But the trend follows the economy near perfectly.  The economy is in a fairly strong recovery, and so we’ve got more cash to spend.  Thankfully, we’re not spending it all right now.  This build up of cash isn’t following total savings trends, which suggest a draw-down themselves.  So which is right?  Are we saving or not?  That’s a great question.  One thing is clear, we’ve got more cash in our accounts.  And at the same time banks are reluctant to lend.  Without lending, they make less money.  So the fees on accounts may continue to climb.

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categories: banking, economics, personal finance