Checks, Balances and the Myth of “Free”

By Jennifer Tescher, CFSI

Last week’s headlines gave the impression that America is suffering from a lack of basic financial access, particularly for lower-income consumers.

The fact is, consumers have more access to high-quality, low- or no-cost transaction accounts than they have had in at least a decade, thanks to dramatic changes in technology, a deeper understanding of consumer cash flows, regulatory pressure and an increasing sense of enlightened self-interest by banks.

While access to high-quality financial services matters, focusing on access alone is like putting a Band-Aid on a broken arm. The fact that a $5-per-month bank account is still too costly for so many people raises much bigger issues of financial health and well-being.


The most recent headlines have focused on the actions of Bank of America. The bank announced that it was transitioning the small percentage of its customers still using its defunct e-checking account, which had no monthly fee for those who didn’t use the teller and didn’t get paper statements, into accounts that charge a fee. The shift sparked outrage and a Change.org petition urging the bank to reverse the move.

That Bank of America now finds itself in the crosshairs is ironic given that it was early among banks to modernize its checking accounts in the years following the invention of the iPhone and the financial crisis.

To understand the checking account revolution, it is important to acknowledge that free checking was never really free. Banks could afford to offer checking accounts with no monthly fee only by subsidizing them with overdraft fees, most of which were generated by a relatively small number of customers. Moreover, heavy users of overdraft are more likely to have lower incomes.

Bank of America understood this, and in 2010, the bank did away with debit overdrafts incurred at the register. And in 2014, the bank introduced Safe Balance, a new checking account that did away with all forms of overdraft by getting rid of checks. The account costs $4.95 per month, the cheapest in the bank’s suite of accounts, and there are no gimmicks that get the fee waived — no minimum balance requirements, no direct deposit obligations.

My organization consulted with the bank as it worked to develop Safe Balance. (Full disclosure: Bank of America is a member of CFSI’s Financial Health Network, and I am a long-time member of the bank’s National Consumer Advisory Council.) In many ways, Safe Balance is the flip side of the e-banking account it shuttered.

The e-banking account was designed to solve a bank problem by incentivizing consumers to avoid paper statements and teller visits, activities that drive up bank costs. Safe Balance, on the other hand, was designed to solve a consumer problem, the challenge of living on the financial edge, with unpredictable cash flows and no savings cushion.

The product was the result of an effort by the bank to understand the real financial lives of its customers, especially those who are lower income. It was designed to help consumers avoid overdrafts, an unfortunate source of revenue for Bank of America and most other banks and credit unions in the country, while recognizing that some struggling consumers may need or prefer to speak with a banker in person.

Other top 10 banks are now following suit, albeit as part of a focus on Millennials. For instance, within a few weeks of each other late last year, JPMorgan Chase and Wells Fargo both announced new stand-alone banking apps, Finn and Greenhouse, that among other things do not allow overdrafts. These new offerings stand on the shoulders of innovative fintech companies like Simple and GreenDot, which have been rolling out similar offers over the last few years.

The consistent theme across all of these innovations is a focus on meeting consumer needs, which extend far beyond storing and moving money. Users of these next-generation bank accounts have access to tools to help with bill payment, “safe to spend” balances that help users calibrate their spending, savings “pockets” for stashing extra cash for a rainy day, and sophisticated-but-simple estimates of future cash flows. Some providers are even helping account holders understand their full financial health picture, and helping them to take positive, concrete steps to improve it.

Yet there is still more work to do. Despite these positive developments, nearly half of all Americans can’t come up with $400 in an emergency, and by our estimation, 57 percent are struggling financially. While last week’s headlines may have honed in on the price of checking accounts, that is just a symptom of a much larger problem. The underlying outrage was really aimed at how hard it is to be poor.

Let’s spend more time focused on that.