Whether you have a credit card or use an app, it seems like everything these days comes with perks. Checking accounts are no different. Many modern checking account perks are tied to monthly requirements that determine whether you earn benefits or pay maintenance fees.
In many cases, though, the perks aren’t exactly perks. In fact, it feels more like avoiding penalties.
What to Know About Checking Accounts
Many banks and credit unions offer multiple types of checking accounts, each with their own requirements and perks.
Generally, the requirements and perks are handled in one of two ways. Either the requirements must be met each month to earn the perks, or they must be met to avoid being socked with fees.
Let’s take a look at each of these options.
Fee-Based Requirements
It is usually fairly easy to spot accounts that force you to meet certain requirements in order to avoid fees. In the account description, it will often say in the fees section, “$0 or $10/month” or “$0 or $25 per month” with a link taking you to the requirements to avoid the monthly fee.
Beware of anything that puts an asterisk (*) next to free checking or no fees, because it might have a similar structure.
In these accounts, ‘perks’ generally remain constant or are reduced if you miss the requirements. Instead, you will simply pay for them each month you don’t meet the minimums. For instance, an account that lets you earn a nominal amount of interest sounds good (or at least better than nothing). However, if you miss the requirements for no fees (which could be minimum balance or minimum deposit amount) even for one month, you could end up paying more than the total you would make in interest for the whole year.
Often with tiered plans of this type, both the potential fees and the requirements to avoid them increase as the perks get better.
Sometimes the need to avoid fees can also lead you to make decisions that aren’t in your best interest. Let’s say that you have a checking account that earns .02% interest and requires you to keep a $20,000 balance to avoid fees. It would probably be better to move some of that money to a savings account with a higher interest rate, but the fee structure pushes you to keep the money in your checking account.
Perk-Based Requirements
With checking accounts where the perks are the only thing tied to the requirements, you don’t have to worry about being socked with fees for missing the requirements if you fall short for a month or even more.
Say you have a similar account to the one above that earns some interest, but only if you meet certain account requirements. If you miss the mark for a month, all that happens is you don’t get that month’s interest. You could miss the requirements nine of the 12 months and still often come out better than if you miss the requirements once with the fee-based account.
This allows you to go for an account where you are less certain that you can meet the requirements every month, because it will never cost you anything in monthly fees.
At Metrum Community Credit Union, we have three different spending/checking accounts. All have no monthly fees, or transaction requirements to avoid a fee. One is a simple account with no perks other than those that come standard with the account. The other two, a cash-back account and an interest-earning account, that follow the perk-based model. You won’t be charged a monthly fee if you don’t fulfill the requirements; you simply will not receive the cash back or interest that you otherwise would.
Get To Know the Requirements
It’s important to know what the requirements are for the checking accounts you are considering.
These can come in a variety of forms. At Metrum, ours focuses on minimum monthly deposits and number of debit/credit card transactions. Other banks and credit unions use either minimum or average account balances, having other types of accounts at the banks, or enrolling in a specific membership program at the bank (which, of course, will likely come with its own set of requirements).
Then compare the requirements with your current financial habits. If you had to change in order to meet the requirements, would those changes be financially beneficial to you (or at least financially neutral) if it weren’t for the account?
With a fee-based model, it is important to choose an account where you are confident you will meet the requirements monthly. With a perks-based model, look for an account where you could conceivably hit the requirements occasionally. It might seem like a minor distinction, but it is an important one.
If You Have Questions About Checking Account Requirements, Ask
Sometimes, financial requirements for checking accounts can be difficult to understand. If you find that, call the credit union or bank and ask questions.
At Metrum, we would be happy to answer any questions you may have about our Cash Bank Spending Account or High Yield Spending Account. Give us a call at 303-770-4468 to learn more.