So, your bank has started charging a fee for using your debit card to make purchases. You don't have to take it. Money experts and consumer advocates say there are alternatives every cardholder should consider before paying the new fee.
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"You can shop for a better deal at another bank," says Pam Banks, senior counsel with Consumers Union, the nonprofit owners of Consumer Reports magazine. "Small community banks and credit unions have a reputation of being consumer friendly. Do your homework and shop around."
Another option: Negotiate with your bank, says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling.
"If a person has multiple accounts with the bank, I would ask to have the fee waived," Cunningham says.
Bank of America, which announced that starting in early 2012, it will begin charging certain customers $5 a month if they use their debit cards to make purchases, is already giving some customers a pass on paying debit fees. So-called "premium" customers with high average daily balances are exempt.
"If you're a valuable enough customer, they might say, 'Yes.' It's worth a try," says Cunningham.
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Customers aren't charged a fee in months they don't make debit card purchases. On an annual basis, the new fees would be as much as $60 (under BofA's $5 a month fee schedule). Depending on your family budget, that might not seem like a lot of money. If you're trying to cut costs, however, or you're irked by the general increase in bank and checking fees, that $60 could be the thing that sends you searching for alternatives.
Here are some suggestions on how to avoid paying debit card usage fees:
Cash always works. OK. Many of us have grown accustomed to paying with plastic and avoid carrying cash, which is untraceable when stolen and the least secure payment method. Paying with cash means going to a bank or ATM to actually get the cash.
Withdraw cash from a bank ATM. The banks currently aren't planning to charge customers who use their debit cards to withdraw cash. However, use the bank's ATM to avoid third-party ATM charges. This requires some pre-planning to make sure you have enough cash on hand to cover your purchases.
Upgrade accounts. The debit card use fees are waived for so-called "premium" accounts. Bank of America is exempting high-dollar account holders, who will still be able to get free debit card use. Chase's pilot program in Wisconsin, for example, also waives its $3 debit card fee for accounts with average daily balances of at least $1,500. If you have enough money to meet the minimum balance requirements on these premium accounts, consider upgrading your account.
Switch banks. Banks with more than $10 billion in assets are impacted most by the interchange caps that took effect Oct. 1, 2011. They are most likely to charge debit use fees. Consumer advocates urge debit cardholders to do their homework and find lenders that don't charge fees. That is most likely going to be a local credit union or small community bank.
Use a credit card. Credit cards have gotten a bad reputation in recent years because of high interest rates and "gotcha" fine print and many credit counselors urge people who are overloaded with debt to stop charging their purchases. However, credit cards are a good payment option if you pay the entire balance off each month, so that you avoid interest charges. A September 2011 study from the Boston Federal Reserve Bank found that consumers turned off by debit card fees would most likely switch to credit cards as an alternative. Warns Cunningham: "Even though being charged a fee to use our own money feels like an assault on our intelligence, the fee is likely far less than the interest that would be assessed if the [credit card] account balance could not be paid in full each month."
Pay with a check. Although not all merchants accept personal checks as payment anymore, many large retailers still will take your check. Be prepared. The folks in line behind you may give you the evil eye because checks take longer to process at the cash register. That's one of the reasons many people switched to paying with plastic in the first place. Many banks are eliminating "free checking" and charging higher monthly checking account fees to certain customers. Why not pay with checks to get your money's worth out of the deal?
Switch to mobile payments. Smartphone technology allows you to use your cell phone as a payment device. If your merchant is equipped to process payments in this manner, consider paying by phone. The technology is still evolving and there are concerns about privacy and security of mobile payment transactions. Consumer watchdogs warn that mobile payments should be linked to credit cards -- rather than billed to the cell phone carrier -- to get the maximum consumer protections for resolving disputes with merchants.
Use electronic checking. Paying your bills with a debit card using the bank's online bill payment service does not incur any additional charge.
P2P transfers. New and emerging money transfer options offered by companies such as Pay Pal, foursquare and others, allow person-to-person (P2) payments via a mobile phone and e-mail accounts. Money can be transferred from the payer's checking account, credit card or prepaid card to the recipient's bank or deposit account. "Given that this is such a highly competitive marketplace, you're going to see a lot of new kinds of products emerge -- mobile payments, virtual payments -- different ways to pay than what this is might emerge," says Trish Wexler, spokeswoman for the Electronic Payments Coalition trade association.
Bank of America is the largest bank to roll out debit card fees. Other large banks, such as Wells Fargo and JP Morgan Chase are testing $3 a month debit card fees. More banks are expected to follow suit.
Large banks are trying to find new ways to bolster revenues lost from federal limits on debit card swipe fees. This is the money (called interchange fees) banks collect from merchants every time customers use their cards to make in-store or online purchases. The Federal Reserve Board set the cap at 21 cents plus a few pennies extra to cover fraud and other costs.
Cunningham, from the credit counseling foundation, says debit fees may be unavoidable, adding, "Such fees may be the new reality, but consumers don't have to take them lying down."
Debit cards are a great tool to help control spending, adds Cunningham. "When the money's gone, the spending has to stop."
For some consumers, however, "Debit card use has increased due to a diminished access to credit. Their accounts have either been closed, or the credit line lowered. Therefore, many people, either by choice or by necessity, have switched to using their debit card."
Says Banks from Consumers Union: "Consumers need to be vigilant. If there's something that they don't like about their credit card company or bank, they have the option of walking with their feet."