Bank of America's debit card fees

I woke up to several emails this morning about Bank of America’s new plan to charge a $5 monthly fee to debit card users if they use those cards for purchases:

Bank of America will begin charging a $5 monthly fee at the beginning of next year for customers who make debit card purchases.

Whether you use your card for one purchase a month or 20, you will pay $5 per month starting in 2012. It doesn’t matter if you select “debit” or “credit” at the point of sale.

If you don’t use your card at all, you won’t be assessed a fee, and you can still use ATMs as much as you want without getting hit with the new charge. Plus, customers with certain premium accounts will be exempt from the charge.

Obviously, this is big news for Bank of America customers, but I think the impact of this will affect the customers of other banks as well.

A few Bank of America customers will jump ship. Most will not. While this type of fee is annoying, most Bank of America customers affected by this fee will largely ignore it and just pay it each month. Some will jump ship, sure, but the bank wouldn’t be charging this fee if they didn’t believe it would be a net gain for them.

Should you jump ship? If you rely on your Bank of America debit card for making purchases, this will essentially become a $60 a year fee. That would be incentive enough for me to jump. However, I probably wouldn’t jump immediately. Why?

I expect some other banks to follow suit. Bank of America wouldn’t be making this move if they didn’t believe it would help their bottom line. Given that, I fully expect other banks to match this move in the next year or so.

Thus, if I were with Bank of America and thinking of jumping, I wouldn’t jump until the end of the year when I can see if any other banks are adding similar fees. The longer you wait, the more time you have to see if the banks you’re eyeing are adding such things.

Other banks will laud their free debit card usage in an effort to attract customers. Over time, fee-free debit card usage at the point of sale will become a feature to promote rather than an expectation, sadly.

This may push people to simply use credit cards exclusively at the point of sale. This is what I do already, so such fees by my bank wouldn’t make any difference to me. I simply use a credit card for all point of sale purchases, then pay off the balance in full every month.

Should you make this leap? Using credit cards as your primary purchasing vehicle requires some level of self-control. If you have a history of getting into debt trouble with credit cards, I wouldn’t make this move.

Of course, my belief is that this type of move is part of what Bank of America is hoping for. They’d rather have people carry a balance on a Bank of America credit card and one way to do that is to gently discourage people using their debit cards to buy things.

All in all, this isn’t a great move for banking customers, but it’s not devastating, either. If I were the customer of a bank making a move like this, I would probably be tempted to switch banks, not just because of the fees, but because it sends something of a signal that I wasn’t a fan of a move like this.