Bank of America is rolling out a pilot program in three states that will offer its customers menu of checking accounts with a variety of fee options.
The nation's largest bank, which does business with half the households in America, is testing in Georgia, Massachusetts and Arizona its plans to offer customers a choice of how they pay for their accounts. The test includes ways to avoid fees by linking multiple accounts, credit cards and even investment accounts with its Merrill Lynch unit.
The aim is to make fees clearer for customers, while encouraging them to bring more of their financial activity under the Bank of America umbrella.
"We are trying to provide you choices on how you compensate us," said Joe L. Price, president of the company's consumer and small business banking division.
The pilot program is the latest in a series of moves by big banks that signal the end of free checking accounts, a mainstay in consumer banking for the past two decades. Citigroup and JPMorgan Chase have also introduced new account lists with various fees attached — and options for increasing banking activity or choosing less expensive ways to bank as a way to avoid those fees.
It's all part of the new landscape for banking, brought on by restrictions enacted in the past two years on overdraft fees, credit card charges and other lucrative revenue sources for banks.
"There are real costs with serving a customer with a checking account," said Bart Narter, a banking analyst with the consultant firm Celent. The expense of paying tellers or printing and mailing statements don't go away for a huge bank like Bank of America, he said, although some costs may be lower per customer than smaller banks.
The big change is that banks are being more upfront with their customers about the fees they charge, rather than surprising them with unexpected levies.
By offering a lineup of products, Price said the bank allows customers to choose how to compensate the bank for their services.
"We hear customers tell us they want more control," he said. "They want to pick their own destiny."
Bank of America said the monthly fees in the pilot will be $6, $9, $12, $15 and $25, depending on the type of account and level of service that comes with it. Bank representatives declined to be more specific about what fees are attached to each account, stating it is testing different fees in the three states.
The new choices will have four tiers:
• The most basic account, called Bank of America Essentials, offers a single checking account with a debit card. This account has no minimum deposit required, and will come with a monthly fee attached. Currently, Bank of America's most basic checking account typically has an $8.95 fee, but that is waived if the customer uses direct deposits or maintains a $1,500 account balance.
• The bank's eBanking account, introduced earlier this year, has a single checking account with a debit card, but gives customers a choice to avoid the monthly fee by avoiding tellers and getting e-mailed statements. Currently, the fee for paper statements or using a teller is $8.95 per month. Celent's Narter said this is notable. "What they're trying to do is reducing a customer's cost to serve and sharing in that cost reduction," he said. "That is revolutionary."
• Bank of America Enhanced has a monthly fee if the customer doesn't maintain a $2,000 balance in a linked account or a combined $5,000 balance across accounts. It will offer links with up to four accounts — two checking and two savings or money market accounts.
In addition, Enhanced customers are able to avoid a fee by using a linked credit card at least once a month. That's also unusual, Narter said. Banks typically issue credit cards through a separate division from their retail banking operations and it's hard to combine the businesses.
• The top tier is called Premium, and requires a minimum balance of $20,000 in linked accounts or certain Merrill Lynch investment accounts, or a Bank of America mortgage to avoid monthly fees. Customers may link up to four interest-bearing checking accounts and four savings or money market accounts. Certain banking services, like money orders, cashier's checks and check printing are free.
• For customers with combined balances of $50,000 or more and a checking or Merrill account, the bank is creating "Platinum Privileges," a rewards program that provides specialized customer service, special rates on mortgages, certificates of deposit and money market accounts and a designated Privileges credit card with high-end perks like concierge service.
To start, the choices will be offered for new accounts in the three pilot states by the end of the month. Existing accounts will be converted to the new system in the second half of the year.
The three states represent about 10 percent of Bank of America's consumer business, said Allen Jones, mass market segment executive for the Charlotte, N.C.-based bank. The remaining states where the bank does business will likely be brought into the new program next year.
There is a benefit for consumers in the ability to gauge which product is right for them, said Greg McBride, senior financial analyst with Bankrate.com.
"There's a way to avoid fees, and there's a few different roads to get from here to there," he said. "You either know the fee you're going to pay, or you know that there's an alternative to avoid it."
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