Checking Account Fees: Who’s to Blame and What to Do About Them

This article comes from Odysseas Papadimitriou at Card Hub. Card Hub is a leading online marketplace for gift cards, prepaid cards, and the best credit card deals.

We’ve all heard a lot about new checking account fees recently, and while it’s easy to react negatively in the face of such news and get mad at the banks instituting them, it’s also important to understand why these fees are popping up all of a sudden and how they are going to alter the dynamics of the banking industry. After all, these new fees don’t necessarily mean you’ll be paying more to satisfy your everyday checking needs. They simply mean adjustments are in order.

Why the new fees?

The writing was on the wall as soon as the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act became law. It gave the Federal Reserve the power to regulate interchange fees on the debit cards issued by large banks (but not the prepaid cards or credit cards). As this law, which took effect October 1, is projected to minimize interchange fee revenue by $9.4 billion annually, according to Card Hub data, banks needed to compensate somehow. The elimination of debit card rewards programs and the addition of new fees for debit card use were logical steps, as is a push to prepaid cards.

What’s up with prepaid cards?

Prepaid cards are natural replacements for debit cards, since their interchange fees have not been regulated and they provide the same services as checking accounts, including direct paycheck deposit, online bill pay, ATM and point-of-sale use. The lone exception is the ability to write paper checks, which is becoming less and less important anyway as banking goes digital. Given this, large banks are likely to push customers toward prepaid card use, via no-fee offers, attractive rewards, and increased advertising budgets. So as you start hearing more about prepaid cards and seeing commercials for them, know that they are no longer simply a backup option for people unable to qualify for traditional checking accounts, but are now instead a viable alternative to such accounts for anyone.

“So,” you might be wondering, “if my free checking account is no more, can a prepaid card actually fill the void?” Yes indeed, according to a Card Hub Prepaid Card Report, which examined the cost of using prepaid cards from five of the most prominent issuers. What this study found was that a Green Dot prepaid card can act as a free checking account as long as you deposit at least $1,000/mo. and make sure to only use in-network ATMs. Seeing as you can directly deposit your paycheck to a prepaid card account and GreenDot has 18,000 in-network ATMs, that shouldn’t be too big of a problem for most people.

What else is new?

As alluded to earlier, the Durbin Amendment’s restrictions on debit card interchange fees only apply to banks with at least $10 billion in total assets. So keep that in mind as you shop around for a replacement to your current bank account, as one would assume that small bank checking accounts will become progressively more attractive than their large bank counterparts. What’s more, while credit card rewards have long been superior to those offered by debit cards, the gap has increased even further, with credit card rewards being more attractive than they’ve been in years and debit card rewards having been driven to obsolescence thanks to this new legislation. Ultimately, some major restructuring is underway in the everyday banking industry, so do your best boy scout act and be prepared.