How to dodge debit card fees and keep your own money
How to dodge debit card fees and keep your own money
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How to dodge debit card fees and keep your own money

Many people prefer to use their debit card for everyday purchases because it is easier to manage your money. While you can overdraft (ouch!), you can't rack up the same amount of interest-bearing debt like you could on a credit card. Debit cards are so popular that they account for 28% of all non-cash transactions.


Debit vs credit transactions


You might have noticed that when you make purchases with a debit card, you have the option to run it as debit transaction or credit. This might seem like a trivial choice, but it could impact what fees are charged to your bank account.


When you pick a debit card transaction, you will need to enter in your PIN (personal identification number) and you have the option of getting cash back. When you choose credit, you will need to sign the receipt for your purchase. However, the way these two are processed is very different and could mean extra fees for you.


With either a credit or debt transaction, there are surcharges to process the payment, which can also be referred to as a processing fee. To learn more about those, check out our post on how a credit card works. But for this article, you just need to know that the merchant (where you are buying whatever) always has to pay what is called an interchange fee. The interchange fee refers to both credit card processing fees as well as debit card processing fees.


When you pick a debit card transaction, you enter your PIN. This sends your request for funds through a debit network. Debit networks charge merchants a smaller percentage of the card transaction amount but have a higher per-transaction fee. With this method, the funds are deducted from your account almost instantly, which is one of the reasons why people who are trying to stick to a budget like to use a debit card over credit card.


When you pick credit, you will sign the receipt. This sends your request through the credit network. They charge a higher percentage of the sale but offer lower per-transaction fees.  

What is important to know is that banks make less money when you use a debit card transaction. Because of this, some institutions will charge additional fees.

Monthly service and maintenance fees


Some banks charge monthly fees for the privilege of having a debit card. Some of these are a straight forward monthly fee: BoA $4.95 and SunTrust $7 a month, Regions Financial at $5-$8 a month, and Chase up to $5 and Wells Fargo at $5-$10 a month.


Mike many megabanks, like Citibank offers a range of accounts that can include monthly fees fo up to $25. It's not uncommon for a lower balance to translate to a higher fee. Why would you keep that in your checking account? Also, why are you punishing people with less money... 


Minimum purchase amounts — a fee in disguise


Remember that no matter the method, the merchant is going to have to pay some percentage and a per-transaction fee to the vendors for processing. Imagine that you want to buy a soda for $2.00. The merchant could be charged 48 cents, resulting in an actual sale of $1.52.


You can see how these fees could quickly eat into the profits of a local business in your community.


While this makes a lot of sense for the convenience store, it doesn't make much sense for you. There is no point in purchasing things you don't need. There is a belief that enforcing these minimums is illegal — it isn't. Merchants are allowed to have a minimum purchase amount of up to $10.


Account holds


There are scenarios where you will swipe your card before your final purchase amount is known — things like paying at the pump for gas. When you do this, the system checks to see if you have a minimum balance somewhere between $50 and $100 in order to cover the purchase. If you do, then a hold is placed on those funds.


Now, if you only buy $30 in gas, you still have the $100 hold for several days. To the system, it looks like you don't have this money, which means if you then write a check that would require any of that $70 currently on hold — you'll get hit with overdraft fees.


Some institutions offer overdraft protection. This feature will usually cost you several bucks too, so while it might help you avoid an overdraft fee, you're still paying. For this reason, always make sure you have some extra cash or you use the PIN debit transaction option.

ATM fees


ATM fees are one of the most common service fees associated with debit cards and are charged for the convenience of accessing your money. In order to withdraw funds via an ATM, you need to use your debit card. When you use an ATM that is owned/ operated by anyone other than the ATM card issuer, you are usually hit with two fees: one by your bank, and one by the ATM owner, which is the financial institution that owns the ATM.


These fees range depending on who you use, but that national average for an out-of-network ATM fee is $1.51, which has actually been declining, but it's still your money and it is still being taken from your account.


International fees


When you travel to a foreign country, you should be aware of a foreign transaction fee. It can be hard to know how much cash you should convert or secure in travelers' checks. This makes using your debit card a popular option. However, there are two commons fees associated with using your debit card abroad.


The first is a currency conversion fees. This is the fee charged by the bank to convert your U.S. dollars into the desired currency when making a foreign transaction. This is typically between 1% and 3% of the purchase/ ATM withdrawal amount.


The second fee is one you should already be familiar with: international ATM fee. Just like domestic ATMs, if you use a foreign ATM that is out of network, then you will incur an ATM fee. These range between 1% to 3% per transaction.

How to avoid debit card fees


Now that you know all the ways you can be hit with fees for using your debit card, let's talk about ways to avoid them.

Find a bank that waives ATM fees

Many institutions will waive your ATM fees up to a certain amount. Not only does this save you money, but it is also incredibly convenient. You can use any ATM you see without worrying about a penalty. Some financial institutions belong to ATM networks which could allow you to access more surcharge-free ATMs. (Hint: we can recommend a number of banks and credit unions that offer ATM fee refunds.) 

Choose free checking

Remember, many institutions will charge you a monthly maintenance fee just for servicing your account. What they don't tell you is they need your money so that they can loan it out and make a profit. Banks need you more than you need them. There are plenty of institutions that don't charge monthly fees for your account and don't require minimum balances.  

Use in-network ATMs

Assuming you don't want to do either of the first two options, you could police yourself and insist on only using ATMs that belong to your bank's network to withdraw cash. That gets a little more challenging when you are not somewhere familiar and you need to find an in-network location.

Get cash back

When you get cash back while making a purchase, you avoid an ATM fee. It also minimized the number of times you have to swipe your card and ensures that you won't have funds on hold unnecessarily. You can also find checking accounts that allow you to earn interest and make money on your money.

Find a debit card that is tied to rewards

You are probably familiar with credit card rewards where you earn miles or points every time you spend a dollar. The same can be true for debit cards. When you earn cash back or points, it helps to offset any potential fees you might have incurred.  

Even if you do incur fees from your debit card, they are typically much lower than credit card fees.


What’s the downside?


We've talked a lot about why debit cards are better than credit cards, but it wouldn't be fair to not mention some of the downsides of debit cards. The most obvious one is security. A credit card typically offers better fraud protection features. If someone were to get a hold of your credit card information, then you could call credit card services or customer service and they could freeze those purchases.


With debit card fraud, it is much more difficult to recoup those funds. This is one of the major reasons you will hear people warn to not use your debit card online. But many third-party payment services, such as PayPal, and many mobile apps connect to either a debit or credit card, but you should always be mindful of where you personal information is stored and how purchases are made.


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