The former USTrust made a name for itself hawking free checking accounts with cheeky ads. Now that the Boston bank has been absorbed by Citizens Bank of Massachusetts, consumers looking for the same good deal may have to do some homework.

Only a few Bay State banks approach the size of USTrust, which had grown to $4 billion in assets. And as banks have come to rely heavily on fee income, they appear less likely to launch the kind of fee-free customer promotions USTrust came to be known for.

USTrust’s free checking customers will continue to have free checking at Citizens for one year, through February 2001, said spokesman Brad Minnick. People who held other accounts at USTrust will have their fees waived at Citizens through April of this year. During the next year Citizens customer service representatives will work with the 400,000 USTrust customers to match them to a Citizens account. Citizens officials anticipate that many free checking customers will qualify for the Citizens Circle account, which provides free checking to customers who maintain $5,000 in deposits or loans with the bank.

“Every effort was made to put all UST customers into a Citizens account as close to the UST product as possible,” Minnick said.

The bank has not seen more than the usual amount of merger-related customer runoff, he said. However, a number of banks in Eastern Massachusetts view the merger as an opportunity to gain new customers.

Lynn-based Eastern Bank, which has $2.8 billion in assets, offers a similar free checking product, but only in certain markets. When the bank acquired Hibernia Bank on the South Shore, it continued to offer a free checking product to customers at those branches, said Executive Vice President Mark Primeau. Although the bank has not heavily promoted the free product, Eastern has gained many new customers in that market. The bank plans an aggressive marketing campaign in the next few weeks.

“We’ve literally opened into the hundreds of new accounts of customers that have come from USTrust,” Primeau said. “In the Quincy market, for example, we’ve seen a lot of activity.”

Like many institutions, Eastern has developed a relationship package that waives certain fees to customers who carry a set balance with the bank. Eastern customers with the relationship package get the bonus of free worldwide ATM use.

“There are people that want to use the more sophisticated products where they can go to our Web site and use Quicken or a personal financial management product,” said President Stanley J. Lukowski. “There’s a segment of the population that really wants to do that, that enjoys use of the Internet and wants to consolidate all of their financial information.”

It’s also less costly for banks to market mutual funds or life insurance policies to people who already hold accounts. Many banks have adopted a one-stop-shopping approach to capitalize on new banking laws, to increase customer profitability and to develop customer loyalty.

Fee Income Sought
Institutions of all sizes have placed a larger emphasis on fee income as loan margins have become less profitable. That’s one of the reasons banking consultant Will Sheehan of W.M. Sheehan in Duxbury doesn’t expect any of the state’s larger banks to offer free checking.

“In an era when margin income is shrinking and expenses are going up because of the cost of technology and new services, banks are looking for sources of fee income and not looking to give it up,” Sheehan said. “They can use all the fee income they can get.”

Customers who want to use electronic banking or asset management and trust services are driven more by convenience, he said. On the other hand, customers who want free checking may be willing to accept less convenience.

“You have different types of customers,” Sheehan said. “The fee-sensitive customers are a different breed from the one-stop-shopping customers and the convenience-driven customers.”

Fee-sensitive customers may be drawn to the free checking offered at many community banks, which are more likely to continue offering the accounts, he said. Hyde Park Savings Bank advertises itself as “the home of free and easy banking.” Community banks such as Charter Bank in Waltham and Heritage Bank in Salem offer a totally free checking option to their customers, along with accounts that incur fees but provide more benefits.

Medford-based Century Bank launched an advertising campaign to draw commercial and retail customers from merging banks. As part of a strategy to position the bank as an alternative, Century dropped its 20-year-old logo for a more modern look. Last Tuesday the bank kept its 16 branches open until midnight and offered 12- to 60-month CDs with a 7 percent interest rate to customers who opened new accounts with overdraft protection. Print ads for the promotion say “If you’re distressed about your bank’s merger, we’ll come to the rescue.”

“What we are trying to attract are those customers in our geographic footprint, business customers as well as consumers that are looking for a stable environment,” said Executive Vice President Paul A. Evangelista. “We want to make sure that we are an alternative to these customers.”

The $925.5 million-asset bank offers a checking account that is free with direct deposit and free ATM use. The bank joined the SUM surcharge-free ATM network in February, in part because its contract with BankBoston’s Express 24 network expires in August 2001.

“I think that many banks within the [Interstate] 495 belt within the last 12 months have launched free checking campaigns, which is very smart,” said Evangelista, who worked as USTrust’s director of marketing and delivery systems before joining Century Bank in December.

“This is a product that has gone away, and there are many customers with profitable relationships that are within that product line, therefore smaller community banks are taking a stab at trying to draw those relationships.”

Free Checking Grows Scarce With the Demise of USTrust

by Banker & Tradesman time to read: 4 min