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Is Your Checking Account Worth The Cost?

Which personal checking account offers consumers a better cost to value ratio?


Free checking or premium checking?


One of the most important rules of marketing is that your product or service must deliver more value than the money spent by the consumer acquiring it.


At least this is true if you are to be successful in the long run.


Looked at another way, would you spend $100 on a product that ultimately delivers only $90 of perceived value?


The only glitch in this line of reasoning is that a majority of purchase decisions are based on emotional thinking rather than rational thinking.


This is especially true during the holiday season when billions of dollars are spent on gifts for other people.


I got to thinking about this while reading a recent newspaper article by George F. Will, “With holiday gifts, satisfaction is far from guaranteed.”  In his second paragraph, Will introduces his readers to a fascinating new book, Scroogenomics:  Why You Shouldn’t Buy Presents for the Holidays.”


This entertaining, 146-page book was written by Joel Waldfogel at the University of Pennsylvania’s Wharton School of business.  Published in October, it’s available in hardcover for only $9.95 at amazon.com.  Surely, this book delivers more value to most readers than its puny $9.95 cost.


I think most of us will agree that a majority of Christmas presents received each year deliver less value than their original cost to the giver.  At least that’s the premise of Waldfogel’s book.


This got me to thinking about the cost of checking accounts offered by banks and credit unions – which brings us back to the question posed in the opening paragraph.


Obviously, free checking provides superior value for the amount of money spent to open and use it – which is effectively zero.  As long as your customer has his or her free checking account, there is no monthly fee or minimum balance requirement.


With premium checking, your customer must pay either a monthly fee or maintain a minimum monthly balance in order for the new account to provide the value sought – which is basically to warehouse money and provide it on demand.


While the monthly fee is an out-of-pocket expense, maintaining the required minimum balance presents an opportunity cost.  At any point in time, your customer may wonder about a better use for her minimum balance funds that are sitting idle in the account.


About now you may be thinking that the monthly fee and minimum balance costs are not costs to open a premium account.  And you are correct to a point.  But remember, the premium account isn’t usable until your customer incurs the ongoing maintenance cost to keep it open.


The problem with premium accounts is that every month, your customer is reminded of the cost – either via the fee or idle balances.  Not so with free checking.


And even if your bank or credit union pays interest on checking balances in premium accounts, the amount of interest paid is miniscule.  This paltry amount of interest paid serves as yet another reminder of the cost/value tradeoff being made by your customer.


This is perhaps the primary reason why attrition is much higher for premium accounts than it is for free checking.


While I’ve never heard of someone giving a free checking account as a Christmas gift, I’m sure it would be better received than a premium account requiring the recipient to pay monthly to keep the account open.


With a premium checking account as a Christmas gift, satisfaction is far from guaranteed!