Retail banking will enter a new era as 1981 begins: All depository financial institutions across the country will be permitted to pay interest on their customers' checking accounts.

For consumers, this could mean substantial benefits in the form of extra earnings, provided they shop around for an account plan that suits their typical bank-deposit habits.

For savings and loan associations and credit unions, 1981 opens the door for more competition with commercial banks in seeking deposits. And for the banks, which are losing their sole franchise on checking accounts here and in most parts of the country, the competition is forcing a new set of service charges to balance the extra money banks must pay out in the form of interest to keep checking account deposits.

It's an unprecedented situation: Consumers will have the widest array of options ever available to them when considering where they want to have a checking account or a savings account. The individual offerings add up to an extremely complex mix of variables that each consumer must consider when looking for the one choice (or several choices) that best suit individual needs.

Interest bearing checking or NOW (Negotiable Order of Withdrawal) accounts will be offered by banks, savings and loan associations and credit unions in Washington and elsewhere in the country starting Dec. 31. Commercial banks and thrift institutions (savings and loans as well as mutual savings banks) will be authorized to pay up to 5 1/4 percent interest on these checking deposits.

The interest-in-checking is one of the most important -- and undoubtedly the most visible to consumers -- of the measures contained in the Depository Institutions Deregulation and Monetary Control Act of 1980, which will revolutionize the nation's banking industry.

In preparation for this event, The Washington Post surveyed 144 depository institutions throughout the region.

This article will deal with the consumer pricing structure offered by banks and S&Ls here. Subsequent articles in this series will deal with the development of NOW accounts in general and with credit unions' share draft accounts, their form of interest-bearing checking.

Sixty-six percent of the area institutions polled by The Post responded, although a few answers arrived too late to be tabulated. Of all the respondents, only Glen Burnie Savings and Loan and Education Association Federal Credit Union said they had no plans to offer NOW or share draft accounts.

The questions wer designed to aid the consumer in deciding whether a NOW account is suitable for him or her and in selecting the institution that offers the best deal. Since this depends on the amount of money a person customarily keeps in a checking account and, in some cases, the number of checks written, there is no way of determining a single best deal.

Factors such as proximity to home or office, loyalty and past service could not be measured in the survey, but are often equally important in selection.

As might be expected, there are myriad NOW plans, some refreshingly simple and others exasperatingly difficult to figure out. Several banks offer a variety of checking plans. The majority of NOWs are offered without any strings attached; others take one's regular savings balance into account. A few charge for each check or charge only for checks in excess of a permissible number. Some banks continue to offer the automatic savings-to-checking plans they initiated several years ago while advertising them as interest-on-checking accounts -- which, of course, is what they were all along.

To evaluate the innumerable permutatations of NOW accounts available in the Washington region, this discussion will consider only 10 variables, including the monthly balance that must be maintained to avoid incurring service charges, initial deposit required to open a NOW account, and the breakeven point at which the customer earns more interest on the account than he or she pays out in monthly service charges and/or transaction fees.

The maximum fees a customer can incur each month are noted along with the effective rate when interest is compounded, and the basis for determining the balance on which the interest is computed. Other questions included whether the institution pays a lower rate of interest on lower balances and whether it returns checks to the customer at the end of the month.

The questionnaire revealed that three-quarters of the 27 banks responding impose service charges if the balance dips below the stated figure at any time during the month. The remaining banks, on the other hand, apply charges only when the average monthly balance is lower than the prescribed amount. The distinction between average and minimum can make a big difference to the customer with a widely fluctuating balance.

According to a banking rule of thumb, an average balance runs about 2 1/2 times the minimum balance. To calculate the average balance, start with a regular deposit, add half of a month's deposit to the minimum balance and divide by two to get the average. For example, if the lowest balance last month in your checking account was $300 and your weekly paycheck is $500 ($2,000 monthly), your average monthly balance is $650.

Area banks calculating charges in the basis of the minimum monthly balance collectively required a balance of $910 -- some higher and some lower. Those working in the average system required $1,142.86, on average. But when this last figure is converted to the minimum system (by dividing by 2.5), it appears to be twice as liberal as the other system.

In The Post's survey, McLachlen National Bank required the highest minimum, $2,000, and the National Bank of Fairfax, with its average $500, had the lowest requirement.

Just one S&L, Home Federal in the District, indicated in the survey that it plans to calculate charges on the average monthly balance. Averaged together, S&Ls require customers to keep a minimum of $355.65 in order to avoid service charges, compared with $914.19 at banks. As with banks, the required balance is higher at District S&Ls ($518.75) than in Virginia ($395.45) or Maryland ($210.42).

The S&Ls' average in the poll is lowered by three associations that offer free NOW accounts; i.e., there is never a service charge no matter what the balance, so all interest is a net gain. (There are charges for such services as providing copies of checks, issuing stop payments, printing new checks, etc., but since most institutions charge for these anyway, they are not considered when a NOW account is labeled "free".)

Only 14 percent of thrifts in New England, New York and New Jersey still offer free NOWs, according to a survey of 207 depository institutions issued last June by McSweeney & Associates, a Newport Beach, Calif., management consulting firm. "Free" in this study includes thrifts with a $50 minimum balance requirement. In this area the combined number of free and $50 minimum accounts amounts to 15.6 percent of the sample of 32 S&Ls. More than one-third (37.5 percent) of the area thrifts had minimums below $500; 42 percent had $500 and the rest imposed minimums up to $1,000.

Perpetual American in the District had the highest; Metropolitan Federal and Standard Federal the lowest in Maryland, and Dominion Federal the lowest in Virginia, according to the sample. The last three will require no minimum balance and levy no service charges. This is in line with McSweeney's analysis of pricing by thrifts in the Northeast.

Thrift executives were asked how they could afford to offer free NOW accounts, after what happened in New England. Robert J. McCarthy, president of Metropolitan, called that experience no longer relevant. Whereas the Yankees went broke trying to pay 5 1/4 percent interest on checking while collecting 8 or 9 percent on their mortgage loans, he recalled, S&Ls are today making loans at 15 percent. "NOW accounts are too big an item to offer as a loss leader," he said. "We must make a profit on them."

McCarthy anticipates adding 8,000 NOW accounts with an average balance of $900 each to the association's 25,000 existing savings accounts. Three-quarters of the NOWs will come from present customers' bank checking accounts, and the remainder will be established by new customers, he predicted. aExecutives of Standard and Dominion expressed similar optimism.

C. S. Taylor Burke Jr., president of Burke & Herbert Bank & Trust Co. in Alexandria voiced a decidedly different opinion. "S&Ls see [NOWs] as a new toy, but they're going to have losses to curl their hair. While they're learning the banking business, they're going to make it tough for us [bankers]," he said. He expects Burke & Herbert will have a $250,000 loss this year due to the drain of customers switching their checking accounts from his bank to savings institutions."We don't know yet whether the public will love it or hat it [NOWs]. But 1981 is going to be a wild year with everyone [in the banking industry] swinging like two fighters in the ring without a referee."

Because of banks' higher costs, including heavier reserve requirements due to their existing checking accounts, their prices to the public are generally higher than those of S&Ls. It's also a strategy question.Banks would prefer fewer customers with large balances whereas aggressive thrifts are trying to attract a large number of customers (most with more modest balances), whom they hope to persuade to open other accounts at the same time.

Therefore, the breakeven point for the customer at S&Ls is typically lower. The Post survey showed an average breakeven point at the region's banks of $873.30. Again, District banks had the highest $1,064, followed by Maryland at $917 and Virginia at $652. For savings and loans, the area average was $314.11. That breaks down to $461.11 in the District, $329.68 in Virginia and $189.58 in Maryland.

If the account balance falls below the minimum required to avoid charges, the breakeven point goes up. For example, First Federal Savings and Loan of Arlington calculates that if a customer's balance dips below its $300 minimum each month in the year, the average monthly breakeven point would rise to $670.

All area institutions except one pay 5 1/4 percent nominal interest on NOWs. Due to different methods of compounding the interest, effective rates vary between 5.38 percent and 5.47 percent. However, the respondents also have different ways of determining the balance on which interest is credited. Average daily is the most advantageous for the customer. Other banks and S&Ls credit an account's lowest balance each day, or the average balance each month.

The least advantageous method is minimum monthly balance. This means, for instance, that if you regularly keep $1,000 in your account, but write a check for $900 on the 21st of the month, your account would be considered having just $100 in it for the entire month, for purposes of calculating interest.

Also, a couple of D.C. banks will credit interest only on collected funds.

This may mean a delay of several days or even weeks until the check deposited to the customer's account clears. Meanwhile, the account holder earns no interest on the money.

Monthly service charges may vary according to the balance. For example, Perpetual American charges $4 if the balance falls below $500 and $2 if it falls between $500 and $1,000 at any time in the month. On the accompanying chart, this S&L's maximum charges are shown as $4. Several associations have reduced their service charges on accounts where the checks are not returned. Thus Baltimore Federal's chart shows a maximum charge of $3 for a no-check-return account and $5 on a return check account.

The highest service charge, $8, will be imposed by Riggs National of Washington and Central National Bank of Maryland. The area average is $5.13 for banks and $3.05 for S&Ls. Again, charges are highest in the District, lowest in Virginia. McSweeney shows that the most common service charge for Northeastern banks is $5; none charged higher in that survey. Three-quarters of the thrift institutions charge between $2 and $3.

Just five of the 59 Washington region's banks and S&Ls polled will impose a charge for each check written. Guardian Federal, for example, charges 10 cents on each check, but couples this with a service charge of just $1 for balances under $300. These terms are most suited to persons with modest balances who write only a couple of checks a month. NS&T Bank (formerly National Savings and Trust) charges 7 cents per check only when the number of checks exceeds 60 per month. (The average number of NOW checks is about 10 a month.)

Family Savings and Loan will charge 12 cents a check on its budget Select Checking with a minimum balance of $250, but nothing on its unlimited Select Checking, where the minimum is $500.

Eight area institutions will tie NOW accounts in some fashion to savings accounts. Maryland National, the largest bank in the state, will waive service charges when the savings account balance is $1,000 or more. This money is in addition to the amount needed in the checking account to cover the checks written. The theory is that it is easier to keep one's savings balance at a given level than one's checking balance.

Washington's McLachlen Bank will count the minimum balance of a customer's NOW account plus the minimum balance of a designated savings account toward it $2,000 minimum required to avoid service charges. The National Bank of Fairfax will accept one or the other balances, but not both.

Eighty-eight percent of the banks and S&Ls pay the same 5 1/4 percent interest on NOWs, no matter what the balance. Of those that do pay different interest rates, United Virginia Bank's plan is typical. UVB, Virginia's largest bank, will pay no interest on balances below $500, 2 percent interest on those between $500 and $1,000, 3 percent on those up to $1,500 and 5 1/4 percent thereafter.

Finally, all of the banks participating in the survey said they plan to continue returning canceled checks to customers. Savings and loans, on the contrary, were divided equally. One-third of the S&Ls will return checks, one-third will not and one-third will leave the option up to the customer.

The trend toward truncation (destruction of paper checks) or safekeeping (at the institution) in favor of a monthly statement showing transactions, was particularly noticeable in the District where 77 percent of the S&Ls said they would not return checks. The others made the service optional. More than half of the Maryland S&Ls plan to return checks; just 27 percent of the Virginia S&Ls do. In those two states, 18 percent of the S&Ls will not return checks; the rest give the customer a choice.