Tuesday, October 11, 2011
The New Debit Card Fees
It made a bit of a splash in the news when Bank of America announced they will soon be charging customers who use their debit cards $5 during each month the card is used. Other banks are considering their own menu of charges. This is what happens when government caps one fee in the free market place: it gets passed on to another payer.
I'm a Bank of America customer (and a rare happy one at that). I also use my debit card before and after hours to make ATM deposits, so I was as concerned as all the rest. It also happens a reader asked me to comment on the story. Turns out I had to pay a regular hours visit to Bank of America because a check wouldn't scan through the ATM and so I gained a bit of in-person clarification. There is something to be said to talking to the people right in the bank. I don't care to reading bank small print.
Here is what I learned: 1. The fee will not apply to ATM transactions, only to debit transactions in the store. 2. The fee will not be charged to relationship customers such as checking account customers who hold their mortgage through Bank of America (which is a lot of people after many Countrywide loans were taken over by Bank of America). 3. There will be a warning to customers shortly, so watch your mailbox.
Those who are considering dumping the debit card should speak to their bank to see what it would take to become a gold/advantage/relationship customer or consider moving their checking into the bank where they can establish such a relationship. If the bank where you have some savings, brokerage, or your mortgage is convenient, it is worth consideration. On my to do list is to find out if I need to close a checking account at another local bank that is rarely used, but useful to have from time to time.
For some, debit card fees will leave them debating between cash or credit. Debit cards combine the benefits of cash and plastic. But with a $5 fee, is it worth it? That is a question each consumer will need to answer for himself or herself. While $5 seems like a lot, if I was choosing between cash/checks and debit, debit would win despite the fee. I can't imagine going back to the days of writing checks in the store (and trying to ignore the annoyed looks behind me while I write the check, have my ID checked, and record the damage). When it takes $50 or $60 to fill the tank of the minivan, do you want to carry cash?
I avoid convenience products like the plague, but plastic is an incredible convenient and a welcome addition. Going to the bank to pull cash out is just another thing that needs to be done. And, as I try to remind myself, each short trip isn't just time but also money. It has been a long time since 99 cent a gallon gas or even $1.50 per gallon gas. Gas isn't a negligible expense at all.
Choosing between debit and credit will be highly dependent on your personal spending habits and organization habits. Generally, if you run a balance or pay late fees from time to time, debit at $5 a month might be worth it.
What about the sole-proprietor and the small business? My recommendation: do yourself the favor and pay the fee if you can't manage with checks. Good records are a must and I've audited enough petty cash drawers to know that when it comes to cash, good records are near impossible to come by.