Between school ID cards and debit cards many of today's youth may have swiped their way into adulthood. BofA recently announced its intention to charge most customers who use their debt card for purchases a flat monthly fee of $5 starting next year. The bank is also testing a new array of checking accounts with higher fees. SunTrust Banks has followed suit and announced plans to add a $5 monthly debit-card fee for purchases to some accounts and is raising some checking-account fees. Citigroup is raising fees and adding a $1,500 minimum balance on basic checking accounts, though there are ways around it. Not to be out done, Wells Fargo will soon begin testing debit-card fees.
The new and higher fees come as a regulation that took effect this month cut the average fees that merchants pay for debit transactions to about 24 cents from 44 cents. In addition, federal rules that have reined in overdraft fees have cost banks billions of dollars, which they are trying to make up in more-direct consumer charges.
The higher costs will hit young people with modest balances especially hard: A customer with a basic Bank of America checking account who uses a debit card to make purchases would pay $6 or $9 a month for the account, based on current test markets, plus $5 for debit-card use—or up to $168 a year. Already, the average checking account costs $250 to $300 a year to maintain, after including infrastructure, regulatory requirements, security protections and other costs, says Nessa Feddis, senior counsel at the American Bankers Association. Interest income on small accounts offsets only a little of that. "At the end of the day, revenue has to be higher than expenses," she says.
Young people—and even their parents—don't have to stay in financially unhealthy relationships. The changing landscape calls for new rules for your consumer affairs.
• Know your partner. The kind of financial institution you choose can make a big difference. Credit unions are nonprofits. Online banks eschew bricks and mortar, keeping costs down.
• Protect yourself. You should carry cash as well—ideally enough to cover the purchases you would make with a debit card. (The new debit-card fees don't apply to ATM withdrawals.) All of them may offer free checking accounts or charge much lower fees, though you still have to shop around for the right deal. In particular, be sure you have access to convenient ATMs where you won't be charged for withdrawals.
The green stuff is still accepted just about everywhere (except for travel). It works even when the power is out, and when you run out, you run out; by contrast, if you spend more than you have using a debit card, you will pay overdraft fees. You can also write more checks, but, really, who wants to do that?
• Make a commitment. One way to save money on bank fees is to play by the company's rules and use more of its services. Just as you can save money by bundling phone and Internet services, you may be able to save on fees if you have some mix of a credit card, car loan, mortgage, brokerage account or checking account with the same bank. Banks and financial-services firms want more of your business and may reward you for it.
• Compromise. Get a travel- or cash-rewards credit card and use it smartly. Put most of your monthly purchases on the card and set aside money each week to pay for them when the bill is due. You can even pay the bill more often than once a month, if it makes you feel better. Just be sure the full amount is paid by the due date each month.
If you do it right, you might earn enough from credit-card rewards to offset bank fees—and that's the best kind of equitable relationship.