By Center for Personal Finance editors
Bank of America (BOA) made big headlines when it announced it will begin charging $5 a month to some customers who use their debit cards for purchases. Some big banks, such as Wells Fargo, are considering imposing similar debit fees. Others, such as Citigroup, plan to leave debit cards alone but will raise some checking fees.
As a result, most Americans will face new fees on debit card transactions, increases on existing fees, and more difficulty in avoiding fees.
You can avoid these fees and even come out ahead:
- Switch to a credit union. "If you're upset, you should do something about it," says Bill Cheney, CEO, Credit Union National Association (CUNA), Washington, D.C. He invites upset bank customers to "take advantage of credit unions' emphasis on service over profits, typically with no or lower fees overall." Surveys by CUNA show that eight out of 10 credit unions still offer at least one free checking account with no minimum balance requirement and no maintenance or activity fees.
- Keep all your accounts in one place. If it's convenient, move different accounts such as credit cards, auto loans, mortgages, checking, or investing accounts to one credit union. You may be able to avoid monthly checking account fees if you maintain a minimum balance in checking combined with other accounts. Check with your credit union for details.
- "Take advantage of credit unions' emphasis on service over profits."Use credit instead of debit and pay the balance every month. Although interchange fees for debit cards were capped starting Oct. 1, 2011 (the reason BOA says it's raising rates), financial institutions still can make some income from interchange fees when you use your credit card. Consequently, they are sweetening the rewards for customers who use credit. Check the fine print on your credit-card statements to be sure your credit card rewards are still effective, and that no new fees have been imposed. Most important, pay the full balance every month to stay clear of high interest-rate fees.
- Pay with cash. Bank debit card fees will be imposed only if you use your debit card. Cash won't trigger transaction fees; some retailers will even reward you with discounts for using it. Just be careful how you get your cash. Frequent ATM withdrawals could cost you even more than using a bank debit card. A good solution: Switch to a credit union debit card, and ask at your credit union about ATM networks it belongs to that can help you avoid fees.
- Look for deals. Now that merchants are paying less for debit transactions, some offer rebates. The rewards could be as much as 10% for buying a specific purchase (similar to Groupon) within a limited time (usually a month). You'll find out about these offers on your statements and in e-mails. Just be sure the items you buy are needs, not merely wants, and are already in your budget.
For more information, watch as Bill Hampel, chief economist at CUNA, discusses the differences between credit unions and commercial banks. And if you're not already a member, find a credit union that you are eligible to join by visiting ASmarterChoice.org.