Is it OK to offer a free checking account(where there is no maintenance or activity fee) but have a higher NSF fee than our regular checking account?

Yes, we have a free checking account but have higer NSF fees for that account than any other account. Been examined by the FDIC and they had no problem with it.

It would not be any different than charging different minimum balance fees differetn checking accounts.

As long as the fee is disclosed up front in your fee disclosures and the customer is well aware of the cocts of the account prior to opening the account, you should be fine.

I am curious why you would charge a higher fee for these accounts. Do free checking customers tend to overdraw their account more? Are you trying to get them to sign up for a different type of account by telling them the NSF is higher on free accounts? Just curious as to your reasoning . . . maybe it's something we need to look at changing.

We do not currently do this practice, but a few reasons come to mind:

Free accounts cost the bank more since they are dependent on OD fees, and tend to carry low balances.

Depending on your market, you may be taking on more risk when you offer and promote a Free checking account.

I think most people looking for a free account are less concerned with the OD fee than the monthly charge, which they are looking to avoid. They tend to think that they will not OD, so it will not effect them.

Non-free accounts generally require higher balances or multiple relationships to remain avoid a fee, so in a way, offering a lower NSF to them is a reward for higher balances or multiple relationships. Perhaps this is a way to market or spin the concept.