Check It Out: Banking That Works for You

The signs in the bank window, the newspaper ads, even billboards along the interstate drum home the same message: Save a bundle with low cost, even free, checking accounts.

Sounds hard to beat, and, in fact, checking account fees are shrinking, according to industry-watcher Bank Rate Monitor of Florida.

But they are not always what they seem. Free checking, for example, might come with enough conditions to choke your checkbook. Or the bank with cheap checks might also dun you up to $2 for visiting a competitor's cash machine.

Some checking accounts are definitely cheaper than others. You have to look a bit, but looking can pay.

It helps to remember that banks see checking as a core account, a product that encourages customers to do other business with them, says Fritz Elmendorf, spokesman for the Consumer Banking Association in Arlington, Va.

So for banks, checking fees demand some delicate balancing - low enough to attract customers but high enough to offset some of the costs.

You may find yourself drawn by a plug for free-checking only to find hidden fees or requirements for a minimum balance - usually $500 to $1,000 a month.

Linda Oeffling calls it "free checking with strings attached." The director of marketing for McHenry State Bank in McHenry, Ill., she cautions customers to watch out for fees with "free" checking: for frequent ATM use, canceled check returns, account balance inquiries, or for visiting a teller.

For example: Banks with extensive automatic teller machine (ATM) networks and electronic banking have begun charging for teller visits. NationsBank in South Carolina now charges for calls to its customer service center. And many banks charge if you want a canceled check back.

The latest twist, Mr. Elmendorf says, is ATM-based accounts: free except for checks and visits to a live teller.

These accounts require you to do all your banking at the ATM: deposits, withdrawals, balance inquiries, and transfers.

Sometimes the fees on free checking mean the account costs more than one with a regular monthly fee.

In some markets, free checking comes with direct deposit of your paycheck. It's an option the bank likes because you won't visit the teller window as often.

In any case, "don't let fees alone drive your banking habits," writes Eric Tyson in "Personal Finance for Dummies."

If avoiding fees means keeping a high balance in a low-interest checking account, you may be better off paying the fee and earning more interest elsewhere.

The key element is knowing your own banking needs, Elmendorf says.

* How many bills do you pay a month?

* How much money will you usually have on hand?

* How often do you visit the ATM?

The answers point you to a basic checking account, a minimum-balance account with no fee, or some other no-fee account.

Most banks also offer "combo" accounts that tie investment and savings accounts with checking. The funds you keep in a savings or money market account counts toward your minimum checking balance to avoid fees. These are the luxury accounts, and they often include free check cards, free telephone or computer banking, and heaps of personal service.

Luxury comes at a price: your money tied up in low interest bank accounts.

Technology can chip away at banking costs. Although banks charge for electronic bill-paying - either by phone or computer - the savings on postage can quickly make up the difference.

Many banks also offer free checking to students and seniors, says Bill Sones, president of the Independent Bankers' Association of America.

One way to avoid bank checking fees is to avoid banks.

Many investment houses and mutual-fund companies offer money-market mutual funds with check writing. These funds pay higher interest - now over 5 percent - than banks but offer fewer services. And they usually require check minimums of $200 or $500. So it's hard to pay your $30 electric bill from these accounts.

Another option is credit unions. These nonprofit banks once restricted access to employees of certain companies, but have become more open. Since they don't have to make a profit, they can charge lower fees and pay higher interest.

Many credit unions and small banks have dropped charges for using other banks' cash machines. Beware, though. Even if your bank doesn't charge such fees, the bank that owns the machine might. Together such fees can add up to $4 per transaction.

TIPS FOR CHOOSING THE RIGHT ACCOUNT

* Know which fees apply to you and how you plan to use the account.

*Use direct deposit for your paycheck.

* Consider a credit union.

*Don't be drawn in by nominal interest earnings that may be outweighed by fees (especially if you keep low balances).

*Don't let fees alone drive your banking habits.

*Be willing to pay some fees if it means you can be earning higher interest elsewhere.

*Find an account with low minimum balance requirements and try to keep that balance.

*Look for linked accounts where the money you invest with the bank (or even the balance on your mortgage or credit card) can reduce your account fees.

*Check investment houses for money-market funds and cash-management accounts. But note check minimums. You can write as many checks as you want at no cost, but the minimum check size is high, often $200 to $500.

IS THAT 'FREE' OR 'FEE'?

Fees to avoid:

ATM surcharges (up to $4)

Bounced check (up to $25)

Lost check photocopy (up to $5)

Account help (up to $25/hour)

Balance inquiry (up to $1)