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Is It Time to Ditch Your Debit Card?

Bank of America’s new $5 monthly fee for debit cards is the last straw / Getty Images

What’s the least-friendly piece of plastic in your wallet? With Bank of America’s recent announcement that it will start charging for debit card use, upset customers might say there’s a strong argument it’s the debit card – and increasingly, there are better alternatives.

The change in debit card terms has been gradual. Most recently, Bank of America announced its plans to levy a $5 monthly fee for making debit-card purchases starting next year. Banks including Wells Fargo, SunTrust and Chase have already eliminated debit rewards programs, and Chase, PNC and TD Bank are charging ATM fees as high as $5 a pop in some markets.

Given the rising costs, consumers may be better off without debit cards at all, says Dennis Moroney, senior analyst covering bank cards at TowerGroup consulting firm. “I never understood why people wanted debit cards in the first place,” he says.

Credit cards can often be a better fit. Consumers who pay off their balances in full avoid expensive interest charges and fees, often while earning rewards of 1% or better. And as recent data breaches have highlighted, credit cards offer better protections than debit cards in the case of fraud or theft. (When debit cards are stolen, consumers risk losing everything in their checking account if they don’t report the theft before the card is used.)

Banks are also expected to start pushing prepaid cards as a debit alternative, says Odysseas Papadimitriou, chief executive at credit-card comparison web site CardHub.com. American Express became the first major bank to introduce one earlier this year. Of course, most of these cards aren’t free either. Users with the American Express prepaid card get one free ATM withdrawal each month, then pay $2 for each one thereafter – in addition to any fees the ATM’s owner might charge. The Green Dot Gold Prepaid Visa card may seem closer to a traditional debit card: For someone who signs up for direct monthly deposits of at least $2,000 and visits the ATM at least once a week, the card levies no additional fees, according to CardHub.com.

Remember cash? No fees or fine print, and more businesses are offering discounts for shoppers who use it. Of course, if it’s stolen, there’s no way to recover it. So even consumers who go cash-only should maintain a checking account with ATMs convenient to work and home, says Richard Barrington, an analyst at MoneyRates.com, which tracks bank rates.

For anyone who still really wants a debit card, smaller banks and credit unions may be the best alternatives. At online bank PerkStreet, for example, customers can earn up to 2% cash back on their debit purchases, as well as 5% on specific categories, like housing or dining, that change each month. (The bank has 37,000 ATMs throughout the country.) At Sovereign Bank, debit card holders get up to 20% cash back on purchases at more than 1,200 retailers, including Restaurant.com, TurboTax and Brookstone, which is then credited to their checking account.

Readers, would you pay $60 per year to use your debit card?

For more to read:

Clarification: An earlier version of this story suggested that several banks were merely testing ATM fees as high as $5. The fee increases are not tests.


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    • Thanks for these pointers. One thing I should also believe is the fact credit cards offering a 0% interest rate often entice consumers along with zero monthly interest, instant authorization and easy on the net balance transfers, but beware of the main factor that will void your current 0% easy neighborhood annual percentage rate and to throw anybody out into the poor house rapid.

    • Unfotunatley many Americans are convinced they have to pay high credit card interest rates. What these credit card holders do not understand, is that they can easily lower their interest rates directly with the credit card issuer with NegotiateMyCreditCards.com.

    • ~~Savings accounts ulluasy have limits on withdrawals, and normally you can not pay bills through them either. You can however, each have a debit card and yes it will work to withdraw money from ATM’s. If you want direct debits you need to open a checking account. Maybe open a savings and leave that money alone (like set up your budget and cover your bills and pocket money through the checking) then don’t touch the money in the savings except in emergencies. That is what savings accounts are set up for. Some even charge fees after 3 cash withdrawals, so be sure you understand all the charges prior to getting these set up.~~References :

    • I still belong to the good old credit union great rates and you stay connected with all the up to date ATM fee FREE.. SOME OFFER A FEE MINE DOSEN’T ..I will never get rid of my debit card money there and I am not using my credit card..

    • If it looks like a duck and quacks like a duck, it must be a duck.. so it is with credit cards and this lame attempt to appear more attractive.. I’ve been burned once and it is not going to happen again.. screw BOA, Well Fargo and the rest who are too big to fail, I’m moving it all to my local credit union which has much more for me than any credit card could ever offer.

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