The Breakdown | Explaining Southern California's economy

Horrified by new bank fees? There’s always the credit union...


Last week, we posted a link on Facebook to a KPCC story about a hike in debit-card fees by Wells Fargo and asked for comments. What say yee, good folk of the banking-beleaguered Interwebs? Forty-three comments later, the results are in: people hate, hate, hate the idea of a fee of even $3 to use their debit card. 

You can’t blame them. Banks basically invented and marketed debit cards to generate higher profits by compelling customers to embrace electronic transactions. But that was then. Nowadays, big banks are doing whatever they can to restore the profits they’ve lost on credit cards and mortgages. Shareholders are demanding it. New regulations are also forcing banks to take a hit on overdraft fees, which means they need to get their money at the front door, so to speak, rather than the back.

Effectively, the era of big banks competing for business by waiving fees is coming to an end. Before the financial crisis, it was possible, even easy, to find a bank hungry for deposits that would allow you to keep next to nothing in your checking or savings account and still incur no fees. A big change from the good old days, when banks routinely charged fees for services.

Some people feel like they’re stuck with the banks, but as several of our Facebook comments demonstrated, they aren’t. Online banks with no brick-and-mortar operations are still an option, as are credit unions. Both are generally insured by the federal government up to certain limits, so your money is safe.

Another commenter argued (briefly) for a rudimentary financial strategy that actually keeps you off the hook for debit-card fees: Don’t use the debit card. Use a credit card instead and pay off the balance every month. This is savvy. You’re essentially borrowing money at 0 percent if you do this, while allowing your cash to sit in a savings account, earning interest. 

Rates are extremely low right now -- and will stay low for the next few years -- but they will eventually rise, so it’s worth it to see this approach in action. If you getting 1 percent on a savings account at, say, INGDirect, and you spend $500 on food during the month, you can pocket $5 on this piece of little-guy arbitrage. Sounds meager, but if interest rates move back into 4-5 percent territory, you can see some benefits -- $240-$300 per year. Obviously, you want to do this with a no-annual fee credit card. And you want to BE DISCIPLINED! Carrying a balance destroys this strategy, because even if you have a relatively low rate, it’s definitely going to be higher than what you earn on savings. 

Photo: Wikimedia Commons