Free checking began as a privilege. Once it spread, customers felt entitled. Eventually, it became a commodity, as most banks felt they needed to offer it. Soon, people took it for granted.

But now, free checking may be an endangered species.

Banks are feeling heat from all sides. This week, President Barack Obama moved to limit the size and activities of the biggest institutions. Last week, he proposed a tax to recover bailout funds.

The biggest impact on checking accounts, however, is likely to come from new regulations governing overdraft protection. Starting in July, banks will need explicit permission from customers before allowing them to use their debit cards to spend more than they have in their bank accounts on a one-time purchase. Similar restrictions will apply to ATM withdrawals.

Banks earn billions in overdraft fees, money that helps pay for free checking.

A chunk of that revenue will disappear when some consumers elect not to sign up for the opportunity to spend more than they have. This week, Bank of America said that $160 million in overdraft fee revenue had already disappeared, because of changes it made in its policies ahead of the new federal rules.

When that money evaporates as other banks comply with the regulations, they’re going to try to make it up some other way, particularly if they’re paying more taxes to the federal government and have fewer ways to trade their way to outsize profits.

So might banks try to do away with free checking entirely? And if so, what would they replace it with?

Some hints lie in the brief history of the offering. In the old days, banks would take in your money, pay you some interest and lend the money to others at much higher rates. Many checking account holders paid monthly or other fees, particularly if they had a low balance. Wealthy clients often paid nothing.

In the 1990s, Washington Mutual brought free checking to the masses. “It was an anchor product that allowed them to get customers in the door,” says Jim Neckopulos, a Hitachi Consulting vice president who worked with Washington Mutual at the time. Then, the bank tried to get customers to sign up for loans and other more profitable services that could subsidize the free checking.

Soon, most every bank had some version of free checking, and they were helped by the rise of the debit card.

“People’s behaviors changed dramatically,” says Aaron Fine, a consultant and partner at Oliver Wyman. “They were no longer balancing their checkbook and were overdrawing their accounts with the card. And that’s what allowed it to be profitable.”

How heavily did banks lean on the overdraft fees? Well, G. Michael Flores of the financial services consulting firm Bretton Woods estimates that the average customer paid 12 overdraft or other insufficient-fund charges in 2009, often at $25 or $30 per transgression.

Starting in July, customers who don’t want to tempt themselves can turn off the ability to overdraw in a store or at the ATM. Nobody knows how many will do so, but it will probably be enough to make free checking unprofitable for many of the banks that had feasted at the fee trough, particularly those with large networks of branches to support.

Some of the less creative institutions will tack on monthly fees again and hope customers don’t flee. Or they may raise the minimum balance requirements that some banks already have. If you value having access to a particular branch in your neighborhood, you may have no choice but to comply unless you’re willing to go to the trouble of switching banks.

Other banks may try something like what Fifth Third Bank has done with its Secure Checking Account package. The bank charges $7.50 per month, but it throws in identity theft protection, which millions of consumers already pay at least that much for elsewhere.

Another option is the a la carte model, where banks offer bare-bones checking for free, but let people pay extra for things they truly value. For a few dollars a month, say, you could use any ATM on Earth free.

But the most popular option seems to be to get retailers to pay for a big part of free checking, not bank customers.

Why retailers?

Well, remember our old friend the debit card, which upended the industry a decade or so ago? Banks don’t just get overdraft revenue. They also get a cut of the fees merchants pay when someone uses a debit card, and banks generally get a bigger cut if cardholders sign for their purchase instead of using their PINs.

You see where this is heading, right? If banks can get enough people to use their debit cards and sign for their purchases often enough, it will go a long way toward keeping checking free and even subsidizing better interest rates or rewards. (It may also cause merchants to raise prices to cover those card fees, alas.)

One company, BancVue, has already helped over 500 smaller banks and credit unions set up free rewards checking accounts. With these accounts, you earn interest rates of 2 to 4 percent or so on balances up to, say, $25,000, as long as you meet certain conditions. Using your debit card (and signing for your purchase) 10 or 15 times a month is generally one of them.

Given that using the card that much may cause you to overdraw more, the banks may not be able to afford such outsize interest rates much longer if lots of their customers opt out of overdraft protection and stop paying fees.

Even so, the interest rates are likely to be better than a big bank can offer. So if you maintain large balances in your checking account, these accounts may offer decent value. You can find a list of them at checkingfinder .com by clicking on the small map of the United States in the lower left of the home page.

A new company called PerkStreet Financial offers a different twist on free checking. You pay no fees for your account as long as it remains active, and you get about 1 percent back of every debit card purchase when you sign while buying (and for Web or recurring charges, say for monthly bills). You then redeem that 1 percent in the form of perks (hence the name) like gift cards from Starbucks and iTunes.

For customers with lower balances who don’t need branches, 3 percent interest on a rewards checking account won’t mean much. But earning $150 in rewards on $15,000 a year in annual debit card spending might.

Dan O’Malley, PerkStreet’s chief executive, says overdraft fees are not a big part of his business model; only 40 percent of customers have even signed up for the service. While he won’t say exactly how many debit transactions his customers must make for PerkStreet to break even, he says that 15 a month would probably be plenty.

Meanwhile, he’s not optimistic about his competitors’ ability to maintain free checking or keep him from picking off some of their customers. “As overdraft revenues go away, it will expose the soft underside of many banks’ business models,” he says. “Banks saddled with branch costs are going to introduce monthly fees, and customers are going to have a problem with that.”

Maybe banks will, and maybe they won’t. Not every checking account provider built its business entirely around overdraft fees, after all.

Still, if you bank at an old-line institution, there’s a good chance it’s going to tinker with your checking account soon. And when it does, you’ll have to decide what hoops you’re willing to jump through to keep the letter “r” from falling out of your “free” account.

By Ron Lieber

New York Times News Service

Free checking began as a privilege. Once it spread, customers felt entitled. Eventually, it became a commodity, as most banks felt they needed to offer it. Soon, people took it for granted.

But now, free checking may be an endangered species.

Banks are feeling heat from all sides. This week, President Barack Obama moved to limit the size and activities of the biggest institutions. Last week, he proposed a tax to recover bailout funds.

The biggest impact on checking accounts, however, is likely to come from new regulations governing overdraft protection. Starting in July, banks will need explicit permission from customers before allowing them to use their debit cards to spend more than they have in their bank accounts on a one-time purchase. Similar restrictions will apply to ATM withdrawals.

Banks earn billions in overdraft fees, money that helps pay for free checking.

A chunk of that revenue will disappear when some consumers elect not to sign up for the opportunity to spend more than they have. This week, Bank of America said that $160 million in overdraft fee revenue had already disappeared, because of changes it made in its policies ahead of the new federal rules.

When that money evaporates as other banks comply with the regulations, they’re going to try to make it up some other way, particularly if they’re paying more taxes to the federal government and have fewer ways to trade their way to outsize profits.

So might banks try to do away with free checking entirely? And if so, what would they replace it with?

Some hints lie in the brief history of the offering. In the old days, banks would take in your money, pay you some interest and lend the money to others at much higher rates. Many checking account holders paid monthly or other fees, particularly if they had a low balance. Wealthy clients often paid nothing.

In the 1990s, Washington Mutual brought free checking to the masses. “It was an anchor product that allowed them to get customers in the door,” says Jim Neckopulos, a Hitachi Consulting vice president who worked with Washington Mutual at the time. Then, the bank tried to get customers to sign up for loans and other more profitable services that could subsidize the free checking.

Soon, most every bank had some