Bank of America to charge $5 per month for debit cards - joining a group of banks in desperate cash grab







Bank of America said Thursday that it will start charging a $5 monthly fee when customers make debit card purchases. The fee will be rolled out starting early next year.



Though the bank, like several others who instated similar fees, will use the revenue to help increase revenue, the move is seen as biased against less wealthy clients as they are more likely to use a debit card because they are often denied credit.



U.S. banks have been looking for ways to increase revenue as regulations introduced since the financial crisis limited the use of overdraft and other fees.



Seeking revenue: Bank of America to charge $5 per month for debit card users

In spite of hesitations about the new fee, Bank of America's stock price was up at the close of business Thursday, coming in at 6.35.



The new fee will go into effect next month when portions of the Dodd-Frank Act, created in response to the financial crisis, begin.



Paying to use a debit card was unheard of before this year and is still a novel concept for many consumers. But several banks have recently introduced, or said they are testing, debit card fees. That's in addition to the spate of other unwelcome changes checking account customers have seen in the past year.



Bank of America's announcement carries added weight because it is the largest U.S. bank by deposits.



Customers will only be charged the fee if they use their debit cards for purchases in any given month as opposed to simply withdrawing cash from ATMs, said Anne Pace, a Bank of America spokeswoman.



The fee will apply to basic accounts, which are marketed toward those with modest balances, and will be in addition to any existing monthly service fees. For example, one such accounts charges a $12 monthly fee unless customers meet certain conditions, such as maintaining a minimum average balance of $1,500.

Singled out: the charge will only be applied to those clients who use their debit card for charges and not ATM withdrawals

The debit card fee is just the latest twist in the rapidly evolving market for checking account.



A study by Bankrate.com this week found that just 45 percent of checking accounts are now free with no strings attached, down from 65 percent last year and 76 percent in 2009. Customers can still get free checking in most cases, but only if they meet certain conditions, such as setting up direct deposit.



The study also found that the total average cost for using an ATM rose to $3.81, from $3.74, the year before. The average overdraft fee rose slightly to $30.83, from $30.47.



An increasing reliance on credit cards would be particularly beneficial for big institutions like Bank of America, which have large credit card portfolios, notes Bart Narter, a banking analyst with Celent, a consulting firm.



'It's become a more profitable business, at least in relation to debit cards,' Narter said.

This summer, an Associated Press-GfK poll found that two-thirds of consumers use debit cards more frequently than credit cards. But when asked how they would react if they were charged a $3 monthly debit card fee, 61 percent said they'd find another way to pay.



With a $5 fee, 66 percent said they would change their payment method.

Several banks are nevertheless moving ahead with debit card fees.



Ganging up: SunTrust, Wells Fargo and Chase charge similar fees

SunTrust, a regional bank based in Atlanta, began charging a $5 debit card fee on its basic checking accounts this summer. Regions Financial, which is based in Birmingham, Alabama, plans to start charging a $4 fee next month.



Chase and Wells Fargo are also testing $3 monthly debit card fees in select markets. Neither bank has said when it will make a final decision on whether to roll out the fee more broadly.



The growing prevalence of the debit card fee is alarming for Josh Wood, a 32-year-old financial adviser in Amarillo, Texas.



Wood relies entirely on debit cards to avoid interest charges on a credit card. If his bank, Wells Fargo, began charging a debit card fee, he said he would take his business to a credit union.



If a debit fee became so prevalent that it was unavoidable, Wood said he's not sure how he'd react.



'I might use all cash. Or go back to writing checks,' he said.

