When you're dealing with your bank you've probably met up with a whole host of fees to keep your account open. Not only is there the standard monthly fee, there are also additional fees for certain transactions and fees for when your account goes inactive. While many banks promise to give you free checking accounts you're probably wondering exactly why you keep paying the bank money for all of these things. You quickly learn that your "free" account can actually end up being quite expensive over time. This has led many people to wonder why banks profit from checking accounts.

How Does Your Free Account Make The Bank Money?

Generally, there are three different ways that your free checking account will make money for your bank. For starters, the banks no longer have to pay interest on your money when it is in a checking account. So, that's more money that the bank will be keeping in its coffers. Additionally, banks hope that their account holders will buy other products from them like insurance, or taking out a car loan or a house mortgage. And they charge additional fees for other services that may not be included in your basic account package.

Reasons Behind The Charges

These charges come at a time when the financial industry is recovering from a major hit in the economy. For a time, the checking account division was the only area in the banking industry that was turning a profit; money management, lending, and even stocks and bonds were struggling through those tough economic times. In many banks, the fees they get from their checking accounts actually made up as much as a third of their overall revenue and reports are showing that they are continually on the rise.

How To Avoid Excess Fees

Some banks report that at least half of their customers have learned how to get around paying those excess fees that are attached to a checking account. The other half actually pays out so many different fees that they make up for those who have learned how to avoid them. Now that you know why banks profit from checking accounts you want to be in that half of the customers that avoid paying those additional fees. In most banks you can avoid the monthly fees by keeping a minimum account balance in your checking account. You can also avoid the additional ATM fees if you only use those ATMs that are in the banks' inner circle.

While most people know that banks are making money off of their money, few really understand exactly why banks profit from checking accounts. Once you have grasped what is happening in the financial industry you're probably more inclined to be more cautious about those banking fees. It may only be a dollar here, a few bucks there but over time those fees can really add up. While banks are still trying to recover from a few years of negative business, you don't want to be one of the people who are responsible for keeping it afloat. The more you understand about how your checking account is keeping your bank afloat the smarter you should be about your banking practices.