Here’s an interesting move on the part of Bank of America… account holders who use their debit card at any time during a month will be expected to pony up $5.00 at the end. The fee doesn’t apply if you use your debit card at ATMs, just when you use it to make purchases. It’s just the latest of the big banks to make waves with debit card fees – and, with the fee scheduled to roll out to Bank of America account holders next year, it’s the largest of the debit card fee programs. Wells Fargo and JP Morgan Chase are also toying with the idea to tack on monthly debit card fees.
Unintended consequences, that usual suspect, has led us to the fees we’re now seeing announced on debit card usage. The first step on the unintended consequences path was the Credit CARD Act of 2009. I mentioned at the time you’d see increased credit card fees and interest rates. Reduced access to credit is another unintended consequence of that law – people who previously could qualify for credit cards were locked out of some credit card programs.
Next of the dominoes was the Federal Reserve’s move to cap the debit card transaction fee. Previously, the average debit card transaction fee was 44 cents a swipe. The rule limited the swipe fee to 21 cents – cutting debit card revenues by more than half in a single move. You may recall that the two sides, retailers in one corner and credit card companies (they process the payments, even though debit cards are tied to bank accounts) and banks on the other, lobbied furiously to either cap the fees (former) or allow fees to float (the latter). Both argued that their side’s plan was better for consumers. Of course, if bank customers give into inertia and just keep using their debit cards, the retailers win and the banks win – but the customers lose.
One of the reasons the big banks have to keep their revenue streams going is because of their huge expenses, like expensive real estate and ATM networks. Interestingly, the more fees that get tacked on, the more likely people will move to Credit Unions and Online Banks. As a whole, these two industries charge less. I should probably write a few reviews on your options, but for now take a look through Google to see what’s out there. I can tell you that my ‘main’ bank account is through Charles Schwab, it’s an interest-bearing checking account, and they refund ATM fees when you are charged for using another bank’s ATM.
Oh, and yes, it’s also another reason to go with credit cards. Setting .44x (the old revenue per swipe) equal to .21x + 5 (the new revenue per swipe plus the monthly fee) means Bank of America will approximately break even if you make 22 swipes. Even though credit cards are harder to get and sometimes hard to manage, they have a number of advantages over debit cards, including many options that don’t come with any periodic fees. Guess some of those will have to come in a future article, as well…