The Durbin Amendment was enacted with the intention of knocking down interchange fees and easing the burden on consumers and merchants alike. Card networks are soaring through loopholes to maintain profits, banks are imposing debit card fees, and merchants are paying greater interchange fees than ever. Debit was once an extremely convenient and cost-efficient form of payment, but it has taken a turn for the worse. Here’s why you might want to ditch your bank and cut up your card.
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Durbin’s Side Effects. Every time you swipe a debit card, the retailer pays the bank a fee. Before Durbin, the average interchange fee stood at 44 cents a swipe. The amendment capped the max at 21 cents plus .05 percent of the transaction, with the possibility of an additional cent. The theory was by stopping interchange fee gouging, merchants would save money and lower prices. One of major adverse effects we’re seeing is the installation of debit card fees. Banks, afraid of losing interchange fee money, are looking to cardholders to cover the cost. Bank of America, for example, will charge debit card users $5 a month starting next year. Wells Fargo and Chase are currently testing a $3 monthly fee. Nobody wants to pay up to $60 a year for a service that was previously free. Consumers are seeking alternatives. Here are a few of the best.
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Credit Unions. If your bank wants to start charging for debit, you’ll want to check out local credit unions. Aside from being a lot more friendly and sincere on a personal level, they won’t hit you with the fees associated with big-name banks. They’re not-for-profit, and they’re run by their members, meaning you. You can be sure that your fees won’t be going to line some faceless shareholder’s pockets. Because credit unions are not-for-profit, you’re more likely to see free or even interest-bearing checking accounts, low interest rates on loans, and high yields on deposit accounts. In fact, credit unions are actually excited about the Durbin Amendment because it showcases their advantages compared with big banks.
Credit Cards. Credit card interchange fees were untouched by the Durbin Amendment and are actually becoming more attractive as banks try to lure customers away from debit. If it’s fees you want to avoid, there are plenty of options that are virtually free to use. Even cards with no annual fee can offer some pretty stunning rewards. Whether you have great, fair, or bad credit, there’s a card for you. Even if you have trouble for qualifying for a card without an annual fee, you should be able to find something for less than the $60-a-year debit usage fee.
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Cash. The simplest solution is to pay in cash. Cash has its obvious downfalls—less secure, takes up space, coins end up everywhere—but it’s the ultimate in dodging debit fees. You can keep your checking account and as long as you don’t swipe your debit card, you’ll get off free. ATM withdrawals won’t trigger the debit usage fees. Just make sure you withdraw from the right ATMs. Surcharges for out-of-network ATMs add up quick and can easily end up costing more than debit card fees. If that’s too inconvenient, invest in a good piggy bank.
Deposit More Money. Some banks may not charge you for debit transactions if you maintain a certain amount of money in your account. If you have the means to do so, simply keeping enough in the bank will allow you to circumvent the debit fee. You’ll have to check with your bank to see if it offers this solution, but it can be an easy way to avoid that extra cost (of course, you won’t be able to spend as much as you please without incurring the fee.) You may also be able to get free checking if your mortgage and credit card debt, investment accounts, savings, and checking balances add up to a certain amount.
Tim Chen is the CEO of NerdWallet, a credit card and personal finance website deditcated to helping consumers find the best credit cards available.
Reader Comments Read all comments (2)
Andrea of OH 4:09PM December 29, 2011
G.S. of MA 4:25PM October 20, 2011