Washington Mutual Inc. of Seattle is reporting some success with its year-old effort to market a free checking.

The account has neither monthly fees nor a minimum balance requirement.

When the promotion was started on Sept. 19 of last year, the $20 billion-asset thrift was posting a net increase of about 15,000 checking accounts per quarter, officials say.

Since then, quarterly increases have ranged from 21,300 to 26,902, pushing the total from about 370,000 to nearly 450,000.

Free checking is the primary product the thrift has been promoting in billboard, print, radio, and television advertisements in Washington, Oregon, Idaho, Utah, and Montana.

Bill Ehrlich, a Washington Mutual spokesman, said the goal is to get more customer relationships, which in turn will let it cross-sell other products. Washington Mutual also hopes to reduce funding expenses.

But R. Jay Tejera, a bank and thrift stock analyst with Dain Bosworth Inc., said that free checking accounts also generate substantial fees, mostly from bounced checks.

At least one other thrift, $5 billion-asset TCF Bank Minnesota, Minneapolis, has found that it can use no-fee checking accounts to attract lower-income customers, Mr. Tejera said. These customers bounce more checks than well-to-do customers. Since bounced-check fees normally total around $20, they can deliver substantial fee income. Mr. Tejera added that the bounced checks don't normally result in losses, since people usually pay up.

"It turns out that the average account (of the free checking variety) generates over $100 a year in fees," Mr. Tejera said. He says Washington Mutual has modeled its free checking account on the one at TCF Bank.

In fact, Washington Mutual is getting fees "in the ballpark" of $100 a year per account, according to Mr. Erlich. Fees come from the $18 Washington Mutual charges for bounced checks, and from the interchange fees charged for using non-Washington Mutual automated teller machines.

Mr. Ehrlich said the bank is in no way trying to encourage people to bounce checks.

In the first six months of this year, Washington Mutual reported an increase in service fees of only 3% from the same period last year, to $36.8 million.

So far, Mr. Ehrlich said, the promotion has not had a substantial impact on the amount of deposits held by Washington Mutual. The reason, he said, is that as money comes into checking accounts, it is being removed into mutual funds.

Washington Mutual's total deposits as of June 30 were $10.2 billion, which was not significantly higher than the $9.8 billion it held at yearend 1994. The amount of deposits in checking accounts was $1.15 billion, also very close to the $1.12 billion in these accounts at yearend.

Mr. Ehrlich added that Washington Mutual had been offering free checking accounts before its current promotion started last year. But previously customers had to have at least one other account with Washington Mutual to get free checking. Now they don't.

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