|by Jason Steele|
The financial and political worlds are both up in arms when it comes to the latest fee hikes on debit cards. BoA started off with an outrageous $5 a month fee for using their debit card, and other major banks quickly followed suit. While everyone was complaining, a lot of people simply sat back and said, “So What?”.
Are You Leaving Money On The Table?
For those in the know, debit cards have always been a sucker’s bet. Why would I take money directly out of my bank account when I could put it on a card, pay it up to two months later, and earn rewards? Here is the scenario:
Two guys visit the web site of an electronics store to purchase a $1,000 television. The other guy puts the bill on his debit card and instantly gives up $1,000. At the same time, I put the $1,000 on one of my reward credit cards.
It boggles my mind why I would want to see my funds instantly drained with a debit card. A month later, I get a bill for $1,000, which I pay in full 25 days later. I just got an interest free loan for 55 days, but that’s not all. I also got 2% cash back, worth $20, but I am only getting started. I received extended warranty benefits and purchase protection in case my new TV gets stolen or damaged. But that’s still not all.
Let’s say, the online electronics store turns out to be one of those fly by night places from New York City, and never delivers the television. The other guy is completely screwed. His only recourse might be a small claims court in New York. In the mean time, I just call my bank and request a chargeback for items not received, and the $1,000 is credited to my account until the store can prove they delivered me the television. But I am still coming out ahead in other ways.
The other guy is paying $60 a year for the privilege of using his debit card, while my credit card may as well not even have an annual fee. For example, Fidelity Investments offers several 2% cash back cards with no annual fee.
What’s Going On Here?
Big banks are playing their customers for suckers. Do you actually buy the idea that these fees are necessary to justify their costs? Of course they are not. They made large profits off of merchant fees before the new regulations went into effect, and they will still make money off each debit card after, just less so. Therefore, they are making a fee grab strictly to boost their profits, not cut their losses.
They are betting that you will accept their justifications for their new debit card fees and pay them. They know that they will loose some savvy customers, but retain the vast majority of lazy people who don’t worry about a few dollars a month in fees. You know what, they are probably right. The people using their debit cards are already giving up a few hundred dollars a year in rewards, so why should they care about $5 a month in fees?
When Debit Cards Work
Debit cards don’t work for me because I always pay my credit balances in full and on time. Most people don’t. If you are one of those people, debit cards still have a place in your life as a method to avoid debt and costly credit card interest. In fact, that is why debit cards have become more popular in recent years, and why banks are happy to discourage their use with these new fees. Debit cards make sense if that is the only way you can keep yourself out of debt, but it just stinks that banks are using this new law as a way to raise fees and steer people back to credit cards.
What You Can Do
Short of switching to a no fee credit card, you can switch banks to one without costly debit card fees. One nice thing about the new law is that it only applies to big banks, those with over $10 billion dollars in assets. That means that only the top 60 banks in the country are affected by the law, leaving several thousand to do business as usual. These banks range from neighborhood banks and credit unions, to some fairly substantial institutions. If you shop around, you will find that there are still plenty of banks, just not the largest, that still want your business and are willing to give you a fee free debit card to earn it.