How to Avoid Debit Card Fees

by Ryan Guina

Several large banks, including Bank of America, Chase, and Wells Fargo, recently began charging or announced they would begin charging customers fees for using debit cards. Customer outrage is the easiest way to describe the response from customers.

Banks are charging these debit card fees to make up for the loss of income resulting from the Durbin Amendment, which was part of the recently passed Dodd-Frank financial reform bill. This legislation limits the amount of money banks can charge retailers for processing debit card transactions. The maximum fee banks can now charge is 21 cents, less than half the previous max of 44 cents. The result is a loss of billions of dollars in revenue – unless banks make up for it with new fees. Chase Bank, for example, tested $5 ATM fees for non-Chase customers.

I’m a big believer in not paying fees unless it’s a necessary evil, and thankfully, in this case, it isn’t. Lets look at a few ways to avoid debit card fees.

Ways to Avoid Debit Card Fees

Bank of America Debit Card Fees

Bank of America is charging new debit card fees. Are you paying?

Don’t use your debit card for purchases. Banks aren’t charging customers just to own a debit card – they are charging them a monthly fee when they use the debit card for purchases. Many debit cards also function as an ATM card, and you won’t be charged a monthly fee for using your debit card only for ATM withdrawals, though you may still be charged ATM feesif you don’t use an in-network ATM. If you are happy with your bank and don’t mind using your debit card only for ATM withdrawals, this may be an option. As for me, I would rather take my business elsewhere.

Change banks. There are a variety of banks which offer free online checking accounts and don’t charge debit card fees. If you are looking for an incentive to change banks, then one good option is the Citibank Checking Account, which is offering new customers up to $400 in Gift Cards for a limited time. There are many other options to use as well, including other online banks, community banks, and credit unions. I personally use USAA Federal Savings Bank, which offers free checking, ATM reimbursements, and no debit card fees. In this day and age of free online banking, there is no reason to use a bank which charges fees for a using debit card along with a variety of other fees.

Use credit cards. If you like the security, convenience, and expense tracking that you get with debit cards, then consider using a credit card for your spending. Many credit cards actually have more benefits than debit cards, so you may end up coming out ahead in the long run. I prefer using cash back credit cards because I enjoy the cash rewards, but other great credit card options can earn you travel rewards, airline miles, or other rewards based on your spending. Just remember to treat your credit card like a debit card (only spend the money if you have it) and you will be fine.

Pay with cash. Using cash for all expenditures is becoming more popular as people try to avoid the temptations of swiping the plastic. But it can become cumbersome for large purchases or buying things online. There are ways to get around these inconveniences, such as using a check for large purchases, or using a service like PayPal or eBillme for shopping online without a credit card. However, PayPal and Ebillme won’t cover all online purchases, so you may need to get creative.

Write checks. Checks are another option, but again, there is an inconvenience associated with checks since they are not universally accepted and you can’t always use them online (some retailers are equipped to accept electronic checks, but not all of them are).

Use prepaid or secured credit cards. Prepaid and secured credit cards function much like a debit card – you make a deposit, and can only spend how much money you have on hand. There are a few small differences between the two types of cards – prepaid cards don’t require a credit check, and won’t help with your credit score, and secured credit cards may help your credit and can be a good way to establish or rebuild credit. Some of these cards may have annual fees, so be sure to read the fine print before opening a new account.

Mix and match. I personally use a cash rewards card for as many purchases as I can, and I am sure to pay it in full each month to avoid any fees of interest charges. But you should examine your needs and determine which option best meets your needs, budget, and lifestyle.

Photo credit: The Consumerist.

Published or updated October 3, 2011.
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{ 9 comments… read them below or add one }

1 Brad

I have no idea why anyone continues to patronize such fee-gobbling giant commercial banks as BofA, which always seem to make news for some outrageous anti-consumer behavior, the last one prior to $5 debit card fees being its widespread use of robo-signing on hundreds of thousands of subprime mortgage loans now in default.

Anyhoo, the best solution to avoiding most bank charges are credit unions, as you point out as one alternative. These rarely charge fees of any type, and usually offer the lowest rates on car loans etc. Credit unions are neighborhood banks, and usually established almost everywhere. They are almost throwbacks to an earlier more innocent age. I highly recommend them and have been a customer of various ones since the mid-80s.


2 Ryan

Great tip, Brad. I primarily bank with USAA, which is a financial institution which supports military members and their families. Anyone can join their bank, but you need to be a member to take advantage of some of their other offers, such as insurance. They are a large institution, but they are member owned, so in some ways, they are like a credit union. They don’t have many local branches at this time, but they lead the market in innovation (they were the first bank in the US to offer at home and mobile deposits, for example). They also offer free checks, ATM reimbursements, great loan rates, and more. I’ve been with them for over 10 years now and have no plans on leaving.


3 Krantcents

I know that Bof A premium account holders will not have to pay the fee.


4 Paul

When using your ATM card, most business will ask or you have the option on the pin pad, to select Debit or Credit, select the Credit option and the fee is regulated as a credit card transaction.


5 Cherleen @ My Personal Finance Journey

Great tips! However, I still cannot understand why I should be charged when using my debit card. It is my money that I am using, anyway!

Come to think of it, when we put our money on the bank, they use it to keep their business running. In the end, they are earning from my money. Not that I am not earning from keeping my money on the bank, but realistically, they earn bigger than I do, and it is my money. And when I use “my money”, I will still be charged and they will again earn from it.


6 Owen K.

One thing that Mr. Guina didn’t cover in this article is switching to a local bank or credit union. Many smaller banks won’t be charging these fees and neither will a credit union.


7 Ryan

Owen, the second recommendation covers this, under “Change banks”:

“There are many other options to use as well, including other online banks, community banks, and credit unions.”

I then gave the example of the bank I personally use, which is USAA Federal Savings Bank, which is a member owned financial institution which does not charge these kinds of fees.


8 Sun

> Don’t use your debit card for purchases.

I cancelled both my BofA and Wells Fargo checking and switched to PerkStreet. They don’t charge a fee to use the debit card. In fact, I get 1% cash back on my debit card (must be signature). I get 2% cash back if I maintain $5k.

> Use credit cards.

51% of Americans keep a balance, so unless you can absolutely pay it off in full, don’t use a credit card. The only exception may be to use a 0% intro APR credit card with a specific purchase in mind or if you’re paying off your debt each month.

If you end up using a credit card and carry a balance with interest, you’ve just felt into the hands of banks and transferred your power and money to the big bank you wanted to get away from…


9 Henry Gardiner

It’s important to note that only large card-issuing banks with assets of $10 billion (think Bank of America, Chase, etc.) or more have been impacted by the Durbin interchange cap. The reason cardholders don’t have to worry about the Durbin Amendment spoiling the low fee/free checking at smaller banks and credit unions is because these institutions are exempt from the cap. Businesses are still paying pre-Durbin debit interchange fees when they accept debit cards issued by these smaller institutions. So, another good way to avoid debit card fees is to switch to a small bank that’s exempt from Durbin – this includes more than just credit unions.


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