Nov. 2, 2011 -- Banks are trying to recoup billions of dollars that they'll lose to new regulations, and it's customers who are feeling the pinch.
How can you avoid getting hit with a barrage of new fees every time you change your account or use your debit card?
Let Mellody Hobson help!
She appeared on "GMA" to answer questions and offer tips to help save you money.
Q: Why are banks introducing the new fees?
A: The new fees are a direct response to new regulations such as the Dodd-Frank Act of 2010 and the Credit Card Act of 2009, that, in part, limit the fees banks can charge merchants when customers use a debit card to pay for a purchase. It's estimated that, through these regulations, about $7 billion will be saved by merchants, who will hopefully pass along the savings to you.
Q: Should you pay a debit card fee, or switch banks?
A: The short answer is maybe. It depends on a number of factors, such as ATM availability and other bank fees. For example, big banks have many ATMS so, most likely, you will only rarely have to use an out-of-network ATM. If you switch to a smaller bank that does not have as many ATMS, you could end up paying more in ATM fees than the debit card fee. Also, don't forget about other fees such as overdraft fees and checking account fees. Before you switch banks, make sure you understand all of these fees. Bankrate.com is a great website to comparison shop for banks in your area.
Q: What are some other bank fees that people should try to avoid?
A: Minimum Balance Fees. The free checking account is quickly becoming a thing of the past as many banks now charge fees if you do not maintain a minimum balance. The good news is that most banks will waive the fee if you set up direct deposit, or if you complete a certain number of transactions with the bank each month. Some banks also allow you to combine your money from different accounts in order to meet the minimum balance requirement, so you should definitely try to keep your checking account and savings account in the same place.
Overdraft Fees. Before the Credit Card Act of 2009, banks gave customers "overdraft protection" that was not protection at all. The bank would "protect" you from having a transaction rejected if you did not have enough money in your bank account, but then charge you $30 to $35 for the protection, possibly turning a $3 coffee into a $38 purchase. The act requires that customers "opt-in" to receive this feature from their banks. Protect yourself from overspending by never, never opting-in.
Also remember that each time your bank introduces a new fee, it will send you a notice by mail or email. Make sure you read and understand every notice you receive and follow up with your bank for more information if there is something you do not understand.
Tips to Avoid Bank Fees
Q: Which payment method is the best: cash, debit, credit or checks?
A: This depends on how disciplined you are and the amount of your purchase. For small purchases under $25, I would recommend using cash or a check. Using cash will help you cut down on impulse buying and avoid any credit card fees. The one instance when paying with a credit card makes sense over using debit, cash or a check is when you are purchasing a big-ticket item, like a TV. Many credit cards offer extended warranties on major purchases such as TVs, or extra insurance on things like trips. Using a credit card is also a protection from carrying around a lot of cash.
Q: Which is better for getting cash, using an ATM or receiving cash back on purchases?
A: This is easy. I call paying out-of-network ATM fees "nuisance fees" because they are the easiest to avoid. If you are weighing using an in-network ATM versus getting cash back at a register, it really does not matter since you will not incur a fee from either option. If you are considering an out-of-network ATM versus getting money back at the register, then I would definitely prefer the debit card.
Another option you may consider is using an Internet bank checking account that refunds all of your ATM surcharges. This is a great option, especially for someone who travels a lot.
Mellody Hobson's Extra Tips:
If you lose your debit card, report it to your bank right away. The law gives less protection for fraud liability that occurs with your debit card than your credit card. If a lost or stolen debit card is reported within 48 hours, cardholders are not responsible for more than $50 of fraudulent use. If it is reported two to 60 days afterward, cardholders could be held accountable for up to $500 of fraudulent charges. After 60 days, though, consumers face unlimited loss.
For reoccurring payments, such as utility bills, use electronic payments through your bank. The payment will get there faster, and you do not have to worry about postage or physical checks. You can also set up automatic payments for items that never change, like your mortgage. This way you will never miss a payment or be late.
Watch out for extra fees when closing your account. Some major banks charge you to close your account if it has only been open for a certain number of days. The simple reason is that it costs a bank about $20 to open a bank account, so it needs to make sure you keep your money long enough to justify this expense. For example, PNC Bank charges you $25 if you close an account that has been open only 180 days or less. The easiest way to avoid this charge is to make sure that you choose a bank where you know you will keep the account open for at least a year or longer.Click here to return to the "Good Morning America" website.