06/28/2010 03:12 pm ET Updated May 25, 2011

End of Free Checking a Financial Squeeze: How Employers Can Help

The free checking accounts many Americans enjoy will soon be a thing of the past as banks scramble to find new ways to recoup overdraft charges and other fees they're no longer allowed to impose.

One bank which built its slogan around free checking is now charging $4.95 to as much as $15 a month for a checking account depending on the minimum monthly deposit and balance. Another, notorious for its excessive overdraft fees, is testing various fee packages, most slated to roll out in 2011. Many other banks are either in the process of doing the same or expected to follow suit.

Three Democratic senators led by Iowa's Tom Harkin have proposed some relief for increased banking fees in the form of capping ATM charges at just 50 cents. But seemingly, just as quickly as Congress lowers one fee, the banks increase another to make up the deficit with at least one now charging a monthly fee just for having a debit card. The only way to avoid the $3.95 fee is with $1,500 or more of activity each month.

The free checking boom has helped millions of low-income Americans join the mainstream banking system. Before that, these people routinely fell victim to the costly check-cashing stores still plaguing millions more.

Employers can be a big part of the solution and have the responsibility to help educate all of their employees about the changing financial services options available to them.

Already 17 million adults don't have a bank debit card, according to a Federal Deposit Insurance Corporation (FDIC) survey last year. This group doesn't have credit cards either in most instances - even before the current slate of fee increases. They can't make electronic purchases. They can't write checks. They can't accumulate money in an account for later use or to make larger purchases over time. They operate on a strictly-cash basis, consistently pay exorbitant fees for services many of us take for granted and forgo other conveniences completely. They are the un-banked.

The FDIC survey in conjunction with the U.S. Census Bureau found the total numbers for both the un-banked and under-banked --who have some but not all needs met by financial institutions-- are even more staggering - 25.6 percent of all U.S. households. That's a total pool of 60 million adults who could easily and often do succumb to questionable financial services.

These low-income households earn less than $30,000 and feel like they don't have enough money to need a bank account, the FDIC study found. That incorrect perception costs them. Check-cashing services range from as little as $3 to $10 dollars per check to as much as 40 percent.

The truth is that everyone deserves quality first-tier financial services. As rates on traditional bank accounts escalate, one option is re-loadable prepaid cards. Depending on your specific financial situation, they can be more affordable than a bank account with many of the same benefits. Employers can get involved by encouraging employees to sign up to have their paychecks direct deposited onto their own re-loadable prepaid cards, thus eliminating onerous check-cashing fees.

nFinanSe recently reviewed 800 prepaid cardholders and found the average user to be 34 years old and female (52 percent). This demographic of 30-somethings isn't necessarily un-banked; they're modifying their spending behavior out of necessity. With credit cards maxed out and credit lines cut for millions of Americans, these women are doing what they must to live within their means without sacrificing the convenience of making electronic purchases.

The average first load onto each prepaid card in the study was $99, which indicates consumers are understandably cautious, especially during the initial trial usage phase. Prepaid cards look like any bank debit card or credit card but function more like a portable bank account. Still, consumers need to be wise about monthly costs and reload fees which vary by company. They also should make sure they get a card that doesn't charge for account balance inquiries or customer service.

Employers have to be part of the long-term solution to the unbanked problem, which could get even worse as fees for traditional accounts increase. They should encourage employees to get the most out of their paychecks by providing information about all of the options - from bank accounts, to reloadable prepaid cards and direct deposit on prepaid cards. The exorbitant costs for operating outside the financial mainstream are just too great, especially for low-income households who need every dollar they earn.

Ms. Morgan is the Vice President of Marketing for nFinanSe, a financial services company and provider of stored value and prepaid card solutions headquartered in Tampa, Fla.