BofA: 5 Tips to Profit from the Debit Card Fee-for-All
Bank of America will start charging a $5 monthly fee to consumers who use their debit cards early next year, joining a series of banks reacting to new federal regulations by imposing new costs for customers.
The movement to impose debit card fees is a reaction to something called the Durbin Amendment, which restricts "interchange fees" that have been largely invisible to consumers. Interchange fees are paid by merchants every time you use a credit or debit card.
Merchants have been griping about these fees for years, saying that they have far exceeded the costs of processing their transactions and were squeezing profits of small businesses. Finally, as part of last year's financial overhaul, merchants won some relief. As of Oct. 1, the fees shouldered by merchants will be cut in half.
Banks and payment processing companies, such as MasterCard and Visa, each get a portion of these fees. They've typically shared a portion of this lucrative action with consumers through 1% rebates as a way of encouraging people to use the cards (and boost their fee revenue). Now that banks can't charge as much to merchants, many issuers have halted the give-aways and started charging consumers to use the cards instead.
But even though the rules have changed, consumers can win this game. Here are 5 tips to how you can profit in the new debit card environment.
Understand the Game: The primary way banks could make a profit on debit cards was through interchange fees, since debit cards (theoretically) immediately debit your account and never result in you paying interest. But the other plastic in your wallet -- the credit cards -- allow banks to profit on both fees and potential interest charges. So where debit card rewards are evaporating, credit card rewards are alive and well. When you're tempted to swipe a debit card, use your rewards credit card instead. Not only is it more likely to result in a rebate in the form of cash, miles or "points," using credit is far safer than using debit. (See Dangers of Using a Debit Card.) Just make sure you pay the full balance every month -- just like you did with your debit card. If you don't, using a credit card is far from free.
Change teams: While today's news is that Bank of America just announced that it will start charging a $5 monthly fee to consumers who use debit cards for point-of-sale transactions (rather than simply at the ATM) starting early next year, they're not the only one. Wells Fargo will be testing a $3 fee in five states. Chase, SunTrust and Regions Bank are also launching debit card fees-- some in tests; others system wide. Several other big banks, including USAA, U. S. Bancorp and Harris Financial have dumped debit rewards programs, and even more banks have stopped enrolling new customers in the pay-for-spending programs, says Alex Matjanec, co-founder of MyBankTracker.com. But if you're willing to shift your accounts from one of these big banks to an online bank, you can still get debit rewards, says Matjanec. Ally Bank, for instance, pays both rewards and a decent interest rate on deposits.
Be a star: God may love all people equally, but your banker? Not so much. Banks love big depositors, big borrowers and big spenders -- just as long as they can always make good on their debts. The more relationships you have with one bank, the more than bank will love and cater to you. Develop and keep several accounts in good standing with just one bank and that bank may be willing to "waive" fees that it charges to others, says Bill Hardekopf, chief executive of LowCards.com. But you may have to ask.
Look for opportunities: Now that merchants are paying less, they're sometimes willing to get into the rebate game just like banks were, says Matjanec. They're increasingly teaming up with bankers to offer special deals for those who shop in their stores. Better yet, unlike the bank rewards, which typically paid 1% on everything, merchants are offering rewards as big as 10% to those who buy something within a set period. It's turning into a Groupon-like "deal of the day," Matjanec says. But you have to look for the rewards by reading your banks emails and statements, and possibly going on line to see what's being offered during any given period. (These deals typically last a month or a season and then get replaced by the next deal).
When you see a deal that fits, cash in, he suggests. But only bite when you're buying something you'd purchase anyway. It never makes sense to buy something you don't need just to get a discount.
Watch yourself: Mistakes can be costly in an environment where banks are actively looking for new ways to boost fee revenue because they tend to focus on people who break the rules. To whatever degree you can, pay off your credit cards in full each month. Never pay late. Never exceed your available balance. Always have more money in your bank account than you think you'll need to both pay your bills and exceed the minimum balance required to keep the account free. If necessary, keep your emergency fund in your checking account to make sure you meet that balance requirement and never bounce checks. Just don't mistake the emergency fund with a windfall that you can spend.
If you pay attention, you can still get bank services for free -- and even get bankers to pay you for using your plastic. But one false move and all your savings could be eaten up by fees.
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