Open even a small WaMu account, as my daughter did recently at my behest, and you pay no monthly service charges, you don’t need a minimum balance and you can visit tellers without paying a fee. Pretty sweet. Because free checking sounds wonderful to consumers and is fabulously profitable for banks, it’s become America’s trendiest banking service. Strunk & Associates says 540 banks use the free-checking program it designed, more than triple the number three years ago. Haberfeld Associates, which pioneered free checking, has more than 300 clients. “When I go around the country, free checking is the No. 1 issue on everyone’s mind,” says Reid Nagle, chairman of SNL Financial, a Charlottes-ville, Va., bank-research firm. No one has a total tally, but everyone says the phenomenon is spreading. Free is in fashion.

Have hundreds of banks suddenly become public charities? Well, no. When there are no customers around, bankers call free checking “fee checking.” That’s because free checking attracts customers who are more likely to overdraw their accounts, generating fat “nonsufficient funds” fees. Strunk says its banks average $150 of overdraft fees a year per free-checking account, and Haberfeld clients average $110. It’s those fees that Strunk and Haberfeld use to sell this idea to banking clients.

Banks will generally honor your overdrafts at the cost of a bounced-check charge. If you ask an ATM for $100 when you have only $50 in your account, the machine usually laughs at you. With “fee checking,” you get the cash. And an overdraft charge. “Customers love this service, because it saves them money,” says William Strunk. That it does. Bouncing a check can cost you up to three fees. Not to mention getting you blacklisted by financial databases. Banks offer free checking not because you love it, but because they love it. Saloonkeepers used to offer a free lunch, making up the cost (and more) with higher beer sales. Banks that offer free checking make up the cost (and more) with fees.

Here’s how it works. Say you overdraw your account by $80 (which Strunk says is about average for an overdrawn check) and you pay a $30 fee (what WaMu charges in New York City). Then you cover the shortfall in a week, the grace period the banks generally give you. To you, it’s 30 bucks. To the bank, it’s an annualized 1,955 percent on the $30 it fronted you. That’s right, 1,955 percent. (The math: the $30 fee is 37.5 percent of the $80 overdraft. You use the money for seven days, a daily rate of 5.357 percent. Multiply that by 365.)

This rate makes even “payday” loans, which many people consider predatory, look cheap. Payday lender Advance America says a typical borrower pays $15 of interest for a two-week, $100 loan. That’s a mere 391 percent a year. How come you’ve never seen numbers like 1,955 percent on any documents your “free checking” account bank sends you? Because banks have good lawyers and good lobbyists. Regulators have ruled that these overdrafts aren’t loans or lines of credit, which would require interest-rate disclosures. Rather, the overdrafts are a courtesy–even though banks will honor virtually all your overdrafts up to a preset limit.

To be fair, no one forces you to overdraw your free-checking account. Free checking lets people without much money open accounts, and they really are free if you’re careful. “These are fees the customer can control,” says Doug Marshall, a WaMu senior vice president, pointing out that instead of overdrafts you can use a credit card or a cash advance or a line of credit. Provided that you qualify for such services.

Offering “free checking” to all comers strikes a free-market man like me as far better than many banks’ current practice of not allowing people with even minor credit blemishes to open accounts. If banks can get you to pay 1,955 percent, more power to them. But “courtesy overdrafts” look like loans to me, and banks should have to tell you the annualized cost. That way, you can make an informed decision. Such as borrowing from a loan shark to save money.