PNC Bank on Monday said it will become the latest Greater Cleveland bank to stop offering free checking.

The Pittsburgh-based bank, which is the second-largest in this region by deposits, is giving customers a year's notice that it is phasing out free checking. Consumers won't be able to open a free checking account starting Aug. 18. Those who have them can keep them until June 2014.



For the standard checking account, the monthly fee will be $7 unless customers have an average balance of $500, make monthly deposits of $500 or are 62 or older.

For its "virtual wallet" checking, the $7 monthly fee can be avoided with the minimum balance or deposit requirements, or for students, or customers who don't use tellers to withdraw money, cash checks or make deposits. The changes to this account take effect in December.

"For current customers, the impact will be minimal," PNC spokesman Pat McMahon said. "Nine out of 10 are banking this way already with balances that exceed the minimums."

PNC said it's making the change to "encourage more customers to make us their primary bank" with larger balances or direct deposits and other relationships with the bank, such as loans, credit cards or investments.

"This is part of our long-term strategy to remain financially strong and invest more in technology and the services that enable customers to bank when and where they want," McMahon said.

PNC joins most of its local competitors by ending free checking. Fifth Third, KeyBank, Charter One, Third Federal, Chase and U.S. Bank are among those that charge monthly maintenance fees - typically $5 to $10 a month -- unless customers meet certain criteria, such as maintaining minimum balances, making direct deposits above certain thresholds, having loans with the bank or using a debit card regularly

It's a trend that started nearly four years ago as banks nationwide started trying to reduce costs and increase revenue to make up for the regulatory crackdown on some of their biggest cash cows. For example, regulators put serious restrictions credit card gotcha fees in 2009, on debit and ATM card overdraft fees in 2010 and interchange fees from debit cards in 2011.

Banks nationwide collected $18 billion a year before they were forced to get customers' permission before allowing an overdraft stemming from a debit card or ATM withdrawal. It's estimated that banks lost one-third of that revenue.

And before the new interchange law, banks collected $16 billion a year from merchants when consumers used their debit cards. That revenue has also slid.

On the change in debit/ATM card overdrafts, PNC had said it expected to lose nearly $300 million a year in revenue.

Only a handful of area banks - including Huntington, FirstMerit and First Federal of Lakewood -- still offer no-strings free checking. Huntington, for one, said Monday it has no plans to change its "asterisk-free" no-cost checking, which is a backbone of its customer-friendly philosophy.



Four years ago, 76 percent of checking accounts were free, according to Bankrate.com. Now, only 39 percent are free.

Industry analysts note that "free" checking accounts were never really free but were subsidized for most of the last 15 years by sometimes confusing fees that tended to penalize lower-income consumers. In this environment, the upfront monthly fees are often regarded as a better option anyway.

In reality, a checking account costs a bank $250 to $300 a year to maintain, when you consider things like labor, technology and processing, according to industry research firm Celent in Atlanta.

Fifth Third was the first major local bank to stop free checking back in 2009 when it imposed a monthly fee of $7.50 for customers who didn't meet activity or balance requirements.

PNC's minimum balance requirement isn't as strict as at many banks. Citibank, for example, charges a minimum of $20 a month for checking accounts unless you maintain at least $6,000 in linked deposit/investment accounts or pay an annual fee for a debit card. Bank of America charges checking customers a $9 monthly fee, except for those who keep a $5,000 balance in their linked checking, savings and investment accounts.

Most banks that are increasing minimum balances are requiring $2,000 to $5,000.

A study last summer by the American Bankers Association found that 59 percent of all bank customers are finding ways to avoid bank fees, and 69 percent of customers spend $3 or less in monthly bank fees, such as for account maintenance or ATM access

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Some banks are offering prepaid debit cards as alternatives to traditional checking accounts, but these typically carry flat monthly fees as well. For example, the PNC SmartAccess Prepaid Visa Card carries a $5 per month fee, with no charge to activate it, withdraw money or check your balance at a PNC ATM.

KeyCorp's Key Possibilities card carries a $2.50 monthly fee, a $3.95 card issuance fee, $1 ATM withdrawal fee and 25 cent balance inquiry fee.



The American Bankers Association says prepaid debit cards are one of the fastest-growing segments of the financial services industry.



