Watch Out For New Debit Card Fees

October 7, 2011

Note: Since publication of this post, Bank of America has abandoned the proposed $5 monthly fee for debit card users. Even though this specific fee was not implemented, it is important to be mindful of your bank's fee schedules, as the fee structure for bank products and services offered in conjunction with your account (s) are subject to change. Pay attention to correspondence and fee schedules from your bank to remain aware of any changes to your account, how it is serviced and how much it will cost you.

Last week, Bank of America made headlines with the announcement of a new $5 monthly fee for debit card users. According to a bank spokesperson, the fee will be levied “each billing cycle in which a customer uses a debit card to make a purchase.” The bank has yet to disclose the order in which states will begin seeing the fee, but the fee will be phased in during early 2012.

Bank of America is not the only bank looking to charge checking accountholders for debit card use. In fact, some other banks have already started. SunTrust began charging a $5 fee for debit card users in June. Chase and Wells Fargo are testing smaller fees in select markets.

Why the new fee? New legislation.

Each time you use your debit card for a purchase, the merchant pays a swipe fee to the bank that issued your debit card. Prior to October 1, 2011, banks charged merchants a 44 cent fee per transaction. The fee has now been capped at a maximum of roughly 24 cents per transaction as per the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Many banks have imposed new fees on debit card users to replace the revenue they expect to lose as a result of the new cap on debit card swipe fees.

The facts:

  • If you use your debit card to make a purchase, you will be charged one $5 fee for the billing cycle in which the purchase occurred (typically, a billing cycle is roughly one month).
  • If you do not use your debit card during a billing cycle, you will not be charged the $5 fee for that billing cycle.
  • The fee does not apply to ATM transactions.
  • The fee is a flat-fee. This means the fee will be $5 if you use your card once or one-hundred times during a billing cycle.

What you can do:

  • Shop around. When it comes to choosing a bank, we encourage you to shop around. Compare prices, services, account options and features offered by several banks and select the bank that best suits your individual circumstance.
  • For a comparison of the ten largest banks and their current fee structures regarding checking accounts and debit cards, click here. These figures are subject to change, especially given the current legal and economic environment surrounding the banking industry.
  • Contact us. If you have inquiries regarding your banking options, please email your questions to FEWTalk@umaryland.edu.  
  • While the Office of Financial Education & Wellness cannot recommend any particular bank, we can discuss your needs and help you review your options.

NOTE: Banks may increasingly encourage you to use your credit card for ordinary purchases because credit card transactions incur swipe fees just like debit cards. However, the new cap on swipe fees does not apply to credit cards.

We do not encourage the use of credit cards as an alternative payment method to avoid debit card fees. Unlike debit card transactions, credit card purchases create debt. Credit card debt is subject to interest which accrues daily, and unless the balance is paid off—in its entirety—every period, using credit cards for purchases can prove far more costly!