IN SEARCH OF FREE CHECKING : IT'S TRUE THAT INSTITUTIONS DON'T CHARGE FOR SERVICE, BUT RESTRICTIONS CAN COST.

Byline: Deborah Adamson Daily News Staff Writer

It seems like everyone is offering free checking these days. And if it sounds too good to believe, your skepticism is well placed.

A Daily News telephone survey of 70 banks and thrifts in the San Fernando Valley and Ventura County found 18 institutions that offer free checking accounts requiring no minimum balance. They charge no monthly fee, or waive it if customers meet other criteria, such as using direct deposit.

Size has no bearing on the deals: The list ranges from giant Bank of America with 1,953 branches - 1,017 statewide - to tiny Topa Savings Bank, a Beverly Hills-based institution with three branches.

If you are able to tailor your banking habits to the rules of the bank or thrift, you can, in fact, enjoy free checking.

Yet in the truest sense of the term, there are no totally fee-free checking accounts because, as the ads quietly say, ``some restrictions apply.'' The fine print of the contracts reveals that fees - some basic, some esoteric - can and will be imposed.

Still, there are a number of good deals out there for the comparative shopper. Among the least restrictive accounts are Coast Federal Bank's ``Free Checking: Guaranteed Free for Five Years,'' ``Four Star Checking'' at Fidelity Federal Bank and ``Totally Free Checking,'' at First Nationwide Bank.

Many of the banks surveyed also offer free checking to seniors.

For the general public, free accounts tend to mandate greater use of automated teller machines.

For instance, Bank of America's Versatel Checking charges customers $2 for making deposits and withdrawals with a teller.

Tarzana resident Enrique Ochoa tried to make a teller deposit and was told that he would be assessed $2 for the transaction, since it could have been accomplished at the ATM.

``I'm like, `I don't think so,' '' he said. ``I took my deposit and went outside.''

But he didn't withdraw his business. He can live with the restriction because it enables him to avoid paying a monthly fee.

It's also easier for him to do his banking at an ATM rather than wait in line at a branch during lunch hour.

``I'm restricted, but it works OK,'' he said.

This arrangement, however, doesn't work for Juanita Zolow, also of Tarzana.

``I don't like those machines,'' the senior citizen said.

ATMs can be a double whammy - even with ``free'' checking. Most banks will charge customers for using money machines other than their own. Then, the outside bank can levy another fee on top of the one your own bank charges.

When you use your ATM or debit card to buy groceries or pay for gas at point-of-sale locations, there's often a charge per transaction as well.

Additionally, some charge for bank statement copies and for returning checks in monthly statements.

Then there are the more obscure fees: for closing a new account within 90 days, for replacing a lost passbook or ATM card, or for searching bank records.

Several institutions allow customers unlimited access to tellers without extra charge, but others set monthly limits on such transactions. Some even assess fees for using automated phone systems.

Banking fees rub Steve Vrsecky of Reseda the wrong way.

``Why do they have to charge? It's ridiculous,'' said the immigrant from the former Czechoslovakia. ``In Europe, they don't charge.''

Historically, banks and savings and loans didn't charge many fees, said Fritz Elmendorf, spokesman for the Consumer Bankers Association, a trade group in Arlington, Va.

``Free checking was pretty common and they even gave you a toaster to open an account,'' he said. ``But they wouldn't pay you much interest.''

Federal regulation capped interest rates mainly on deposits to ensure that banks had a cheap source of funds - depositors' money - to turn around as loans with competitive rates. Since banks wanted to attract more deposits, they had no incentive to raise fees.

But high inflation in the late 1970s helped change the banking scene.

Depositors were losing purchasing power by leaving their money in banks and thrifts that paid a controlled rate of interest. Consumers took their money and ran to investments with better returns.

In 1980, Congress passed the Depository Institutions Deregulation and Monetary Control Act. The interest rate ceiling on deposits slowly phased out.

``Banks started paying a competitive rate of return on savings and started paying interest on checking accounts,'' Elmendorf said.

Banks and thrifts competed for business and profit margins shrank - so more fees began popping up.

Since then, ``it's been a fairly steady increase,'' Elmendorf said. In the meantime, interest yields have remained stuck at 1 to 2 percentage points.

There are accounts that pay 3 percent to 5 percent. But, here too, there's a catch. Much higher minimum balances are usually required. Failure to maintain the minimum will usually result in a monthly surcharge.

Again, it pays to read the fine print.

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Photo: Chart: FREE CHECKING ACCOUNTS...some restrictions ap ply 

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