I have a feeling this has been discussed before but I couldn't find it, so a link to another thread would be fine.

Anyhow, why do banks offer no-fee checking accounts? I never accrue late or over-limit fees, or any other kind of fees. I use their free bill-pay service which I imagine is a drain on them. I use their ATMs at no charge. The BoA account I opened just to get the incentive $$ even offered free checks. Not that I use checks anymore. The most that's ever in my checking is around $1500 and that's just for a week before the bills get paid. I imagine my average daily balance is $300 or less.

Why would banks want to keep me as a checking customer?

Loans. Other fees - fees to other customers.

Trust me, banks are not hurting from free checking.

Ya, I'm sure they're doing just fine off of fees others pay, just like the credit card companies. But it seems to me I'd be seen like a person sitting in a restaurant bugging the wait staff for free water every few minutes. They'd want to get me outta there so they'd have a free table and more resources for their paying customers.

Someday you're gonna want to buy something and they've got their foot in the door.
Next time you buy a car/house/etc they are hoping you'll try them first.

Most people occasionally use an outside ATM, or get hit with an overdraft fee. On top of that, the banks make money every time you swipe your debit card. They earn interest on the money you deposit. They also know that most people are likely to have some brand loyalty with their bank, so you may open other accounts with them in the future.

Ah, like a loss leader, huh? Sad thing is, a regular bank is the last place I think about looking for loans. They need to do a better job of catching my attention to sell me other services if that's their plan.

THEY LOAN OUT YOUR MONEY

YOU GET SQUAT FOR LETTING THEM LOAN OUT YOUR MONEY

SOME PEOPLE BOUNCE CHECKS

SOME PEOPLE CASH CHECKS FOR A FEE

NOT EVERYBODY HAS A FREE CHECKING ACCOUNT

SOME SERVICES ARE NOT FREE

SOMETIMES PEOPLE LEAVE $1,000's or $10,000's UNUSED FOR WEEKS or MONTHS

The Amount they have on deposit directly effects how much they can loan out. Banks must keep 8%(?) of what they have in deposits in reserve (Hence the name Federal reserve). Conversely if a bank loans out $100,000.00 they must have $8,000 dollars in reserve. Since that $100,000.00 dollar loan is just an entry on a computer and not actual money, the interest minus the cost of the loan is profit. The $92,000.00 that is created with computer keystrokes is payed back with yet more keystrokes which are again lent out at the 92% reserve rate. A large loan default or sudden lack of deposits can put a bank in trouble fast.

During the gold standard we used the value of gold to regulate the flow of money, money always had a pretty consistent value.

Under the federal reserve system, we used deposits to regulate the flow of money, the problem is that as more money is created it has less value. Hence Inflation.

This is a simplified answer and I have left out many details, So please don't crucify me.

The other way the bank makes money is if you use your ATM card, they get a little bit of interchange fees from that.

I think it's kindof like insurance. You lose money on some people and make money on others and the idea is to spread it around and make money overall.

Plus they use your money to make money. It's not like all the account balances are sitting in the bank in cash. even if they have thousands of account holders with a few hundred bucks who dont pay any fees, that adds up to a lot of money they can make money on.

Bingo. This is probably the prime way banks make their money....by utilizing your money in a low cost or free manner.

It's also interesting you bring up the issue of banks needing to actually have a certain percentage available as actual cash. Normally, this isn't a big deal. But remember when there were those panic withdrawals that happened a while back when there were issues with S&Ls and some banks. What happened then shows exactly what can go horribly wrong when all your depositors make a run on the bank.

Most of the larger banks utilize the money you hold in your checking/savings account to lend to their credit card customers. If the bank doesn't do this then they usually pay the Overnight Interest rate that the feds set (currently 5.25%). I know for a fact that MBNA and BofA lend their checking/savings account money to their credit card divisions.

Also, a large portion of the money made on purchases goes to Visa/Mastercard/Discover and not to the banks themselves. They may get pennies for every $1000 spent.

Most of the larger banks utilize the money you hold in your checking/savings account to lend to their credit card customers. If the bank doesn't do this then they usually pay the Overnight Interest rate that the feds set (currently 5.25%). I know for a fact that MBNA and BofA lend their checking/savings account money to their credit card divisions.

Also, a large portion of the money made on purchases goes to Visa/Mastercard/Discover and not to the banks themselves. They may get pennies for every $1000 spent.

I have free checking and have for a few years.

I have used all of the free services offered by them.

They now have my service for my car loan.

They now have my service for my visa card.

They now make about $45 in interest per month on my outsanding balance.

I assume that I am not the only one who has followed
this path. It was what I did pre CB. I wouldn't have
bothered looking for credit outside of them had I not
found CB. I was tired of hearing NO everywhere else.
2 months of credit recovery and I still cannot get approved
for a CC outside of them. Until this changes and I am
offered better rates by outside lenders they will continue
to get the benefits of the relationship they have built with
me. I will probably keep their services and just ask for
lower rates as my position improves and I start seeing other
approvals. But for now, I have no leverage and they
are doing their best to meet my needs. Their reward...$45
for the month of August.

Thanks for the free checking!