4 Ways to Beat Debit Card Fees
Several banks just announced new monthly fees for debit card users. Fortunately, there are plenty ways to avoid them. (See also: That Sneaky Bank Almost Got Me)
Until this month, the large swipe fees they charged merchants made debit cards a huge profit center for banks. They were so profitable, banks were offering all manner of perks if you'd promise to use your debit card at least 5, 7, or 12 times a month.
Those days are gone. As of October 1st, the swipe fee is limited to just 24 cents. That's still plenty of money to make the debit card business profitable for the bank, but it's not going to fund the huge bonuses that bankers have gotten used to. So, they're looking for other sources of money.
Once source they looking at is a monthly fee. Bank of America is going to hit your account with a $5 fee every month that there's even one debit card transaction. Wells Fargo and Chase are testing monthly fees as well.
You don't need to pay those fees. Here are four ways to avoid them.
1. Change Banks
The big money-center banks don't want your piddly little consumer banking business anyway. They make their money from packaging corporate finance deals, selling credit default swaps, and creating collateralized debt obligations. They figure the plain-jane transaction business of debit cards is beneath them (unless there's some serious fee income involved).
Instead of a big money-center bank, consider:
The medium-sized regional banks probably aren't much better than the money-center banks — they'd also rather be pocketing a million-dollar fee for arranging a standby letter of credit than handling your checking account. But, as the banks get smaller, they start taking real interest in serving their smaller customers. There are plenty of small, local banks that don't charge a fee for checking accounts, with or without debit cards.
Credit unions are owned by their members. Serving your financial needs is what they're all about. They're a lot less likely to charge a fee than a bank is.
Brokerage Firms and Other Non-Banks
If you're wealthy or broke, this may be the option for you.
If you're wealthy, get a cash management account at a brokerage fund. They'll issue you a debit card that will give you access to your wealth, and they won't charge a fee for the card. (Big-name brokerage firms charge a hefty fee for the account; discount brokers tend not to.)
If you're broke, get a reloadable debit card. They have fees as well, but the fees are for specific services (like cashing a check, checking your balance, or using an ATM). Many now allow one free ATM withdrawal per month, and most charge no fee to accept direct deposit. If you track your balance yourself (so you don't need to check your balance), you can use them in a way that's practically fee-free.
2. Use a Credit Card
Just about any place that will take a debit card will take a credit card as well. There are a few exceptions, but not many.
Of course, it's easy to get over your head in debt. But that's not the credit card's fault. If you can use a debit card and not spend more than you have in your checking account, you can do exactly the same thing with a credit card. The only difference is you have to do it yourself. This may be the right choice — if you're ready to control your spending without training wheels.
3. Pay Cash
Go totally old school and pay for things with money! Yeah, plenty of people say they spend more if they have cash in their pocket. I say, get over it. You have exactly the same amount of will power and self-control with cash in your wallet as you do with a debit card.
4. Write a Check
Actually, even I don't do this any more. I still pay bills by writing a check (really!), but I can't remember the last time I wrote a check at a store. And yet, it can be done. It used to be done routinely.
This is hardly the end to the possibilities. The transaction business is about to go non-linear. Paying online, or with your cell phone or your mobile device, is already here, and it's just going to get more common.
With all those ways to avoid debit card fees, there's no reason to pay one.