I’m sure by now you’ve heard the news that Wells Fargo debit card customers in Oregon, New Mexico, Georgia, Washington, and Nevada will be charged a $3 monthly fee for using their debit cards beginning October 14, 2011. With a little more than 3.7 million Latinos in those states we are definitely going to be affected, but you may want to know why has this fee been created.
Interchange fees are a small percentage of each transaction when you use your debit card. Someone has to pay to process that electronic swipe or hand-written signature and that costs money. The fee was $0.44 before the Federal Reserve ruling. The Fed wanted to lower it to $0.12, but after a lot of heated discussion from financial institutions the fee was lowered to $0.21 instead. You probably don’t care what the fee is as long as you don’t have to pay it and this is where it gets interesting.
Financial institutions are primed to lose about half of their revenue from interchange fees. A 2010 lawsuit made the yearly interchange fee revenue available, and we’re talking about $20.5 billion annually. Don’t think for a second that financial institutions are just going to walk away from billions of dollars. Instead, they have decided to recoup some of that revenue by charging customers to use their debit cards. In some markets JP Morgan Chase and SunTrust Banks Inc. have already initiated a monthly fee for debit cards. Now, Wells Fargo is joining the list. The $3 monthly fee will cost customers $36 a year.
It might seem like a small thing, but all those fees add up. Did I mention that the $3 fee does not include the monthly fee to use your account? That means you’ll get your usual monthly usage charge, plus this charge if you use your debit card. It’s time to start thinking about why you use the financial institution that you do and if that institution is helping you leverage your money to build wealth.
One option is to move your money. Here are some things to consider when looking for a new credit union or bank:
Make sure you shop around. You do not have to use the first financial institution that you see. You can’t throw a stone without hitting a financial institution in many neighborhoods, and with the growth of online financial institutions, competition is fierce. Look on websites, talk to friends and family, and contact financial institutions. Interview the people that work for each credit union or bank you’re considering. You have the power to create a working relationship with whatever institution you choose. You’re not begging them. They need you just as much, if not more, than you need them. Make sure you choose a good fit for you.
Make sure that you like them. A relationship with a financial institution is vital to building wealth. You will probably turn to your credit union or bank first when you need a car loan, mortgage, etc., so it’s important that you have a good working relationship with them. You should feel comfortable asking questions and satisfied with their answers. If you feel uncomfortable or uneasy about speaking with the representative do not open accounts there.
Make sure that you’ll have access to your money when you need it. If you prefer a brick-and-mortar bank, find out how many branches are in your area. If you mostly use ATMs find out how many ATMs are available in your area. Most banks have plenty of branches and what seems like a huge ATM system. Credit unions seem to have fewer branches and ATMs, but because of the Co-op Network members can access their money from more than 28,000 ATMs across the country and at any 7-Eleven.
Make sure that you understand the most common fees and how you incur them. When you open your new checking, savings, or money market account the representative is going to give you a small brochure or printout that has all of that institution’s fees listed. Make sure that you understand what each fee is for and how that fee is triggered. Ask questions and if you aren’t sure about the answers, ask more questions. Financial institutions earn millions, and sometimes billions, of dollars from these fees and they will levy them every chance they get. Make sure you know how to avoid them.
Above all, remember that very decision you make brings you one step closer to being wealthy (See 6 Steps to Creating a Foundation for Wealth.) or one step further away. Choose wisely.
Updated 11/08/11: After the announcement that banks were considering charging customers an extra fee to use debit cards, a backlash erupted. Customers across the country created online petitions and took to the streets with signs and chants to show their displeasure at the proposed fees. As of November 2, 2011 Bank of America, Wells Fargo, and JP Morgan Chase have all publicly stated that they will not charge customers a monthly fee to use debit cards.