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Debit card fee slashing strategies

by Broderick Perkins

(10/12/2011) Bank of America struck a cord recently when it announced it will charge $5 a month to some customers tapping their own cash with the bank's debit card.

Other banks also plan to impose similar fees on debit cards and the free checking account is becoming an endangered financial species.

Big banks are up to their old tricks again, but if you are loaded or otherwise have the moolah, so what? If, however, like most consumers, you live from paycheck-to-paycheck or perhaps slightly better, you know you'll feel the fee pain.

Fight back.

You can avoid debit card fees and even come out ahead:

• Switch to a credit union or small bank that doesn't charge the fees.

"If you're upset, you should do something about it," said Bill Cheney, president/CEO, Credit Union National Association (CUNA).

CUNA surveys reveal 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.

"Take advantage of credit unions' emphasis on service over profits, typically with no or lower fees overall," said Cheney. Smaller banks share some of the same qualities.

• Bundle your bank accounts. If it's convenient, move different accounts such as credit cards, auto loans, mortgages, checking, or investing accounts to one financial institution with the fee-free services you want. You often can avoid monthly checking account fees by maintaining a minimum balance in checking combined with other accounts. Before you switch to a new financial institution, examine all fees, not just those for using a debit card.

• Use credit instead of debit, but pay the credit card balance every month. CUNA says although the cap for interchange fees for debit cards was effective Oct. 1 (the reason BOA said it raised 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," CUNA advises.

• Go back to cash. Use cash instead of your debit card. Cash won't trigger transaction fees and some retailers will even reward you with discounts for using cash. Just be careful how you get your cash. You may have to make regular visits to a living teller instead of an ATM. Frequent ATM withdrawals could cost you even more than using the debit card for purchases.

• Look for deals from retailers. Now that merchants are paying less for debit transactions, some offer rebates.

If you regularly shop at Target, for example, and use a Target Red Card attached to your debit card or credit card, you save 5 percent on every purchase. Even if you pay $5 a month for your debit card, and shop often at Target, an already discounted store, the 5 percent discount will more than offset the debit card fee.

CUNA says the rewards could be as much as 10 percent for buying a specific purchase (i.e., 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 wants, and are already in your budget.

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