Should You Swap Debit for Credit?

Just recently Bank of America announced that they would soon be charging a $5 monthly fee for the use of their debit cards. Aside from BofA, Chase and Wells Fargo are also currently testing the market for a planned $3 fee. The reason behind the change are the new federal regulations on how much banks can charge retailers for accepting debit card purchases. These regulations seriously impair the ability of banks to make money from their debit cards. And according to BofA CEO, “Banks have the right to make a profit”. Which brings us to the introduction of debit card fees.

Rumors have it that these banks are secretly hoping that consumers would altogether ditch their debit cards and start charging their purchases with their credit cards. At this time there are no restrictions as to how much banks can charge retailers for accepting credit card payments, giving them the opportunity to earn more. The question now is: should you should start swapping your debit card for a credit card?

First of all, it is important to remember the nature of credit cards. Unlike debit cards wherein you’re only allowed to spend the money that you already have, credit cards give you the liberty to charge within your credit card limit, which may be much more than what you can afford to spend. For those who have the ability to control how much they charge, using a credit card instead of a debit card may be feasible, but for those who “don’t trust themselves” with it, it may be better off to just pay the $5 fee than to find yourself charging a hundred dollars more than usual.

Using credit cards for your usual purchases isn’t a bad idea if you can also discipline yourself to pay the full amount as soon as it’s due. It is also recommended to keep a different credit card for emergencies to keep your daily expense account separate from large purchases. Using credit cards such as Chase Blueprint which allows consumers to pay off smaller incidentals with no interest is also helpful.

One advantage of using your credit card instead of debit is the possible rewards you can get such as cash backs or mileage. Getting a card that offers rewards can be an added bonus to your usual shopping experience.

With the impending debit card fees, would you still use your debit card? Or is it time to switch to credit?

Bank of America Plans To Charge Fees For Debit Card Use

It seems like the time of freely swiping your debit card is almost over. Bank of America Corp., one of the largest banks throughout the United States is planning to place a monthly fee on anyone who makes use of their debit card. They say that they need to do it in order to recoup the revenue it will lose because of the government regulations that will cap the amount they can charge for debit-card transactions.

Banks are estimated to lose about $6.6 billion in revenue due to federal limits on “swipe fees”. To offset this loss, banks have either withheld on debit rewards, added monthly fees on checking accounts, and raised the minimum balance requirement to avoid fees. Now, banks have come up with another solution to regain their losses.

Bank of America plans to charge $5 for every month of debit card usage. Other large banks such as JP Morgan Chase & Co. and Wells Fargo & Co. have been testing similar fees in some states. JP Morgan begun testing in a small market in Wisconsin since February while Sun Trust Banks have begun charging a $5 monthly fee for unlimited usage of their debit card since June.

While big banks seem to be following suit with Bank of America’s decision, the reaction of their customers haven’t yet been taken into account. Allison Miller, Bank of America customer in New Jersey said that she is most likely to switch banks because of the new fee. This reaction is expected in many of their consumers since no one likes to have extra fees being charged to them monthly. The question is, whether or not these customers will take the time and effort in switching banks.

The $5 fee that Bank of America plans to charge is higher than what other banks are willing to charge their customers. Other banks who have decided to follow on BofA’s decision are charging $3, or at most $4. It remains to be seen what consumers will say with regards to all this, but it is expected that they will be unhappy.