How to Beat the Big Banks at the Fee Game

How to Beat the Big Banks at the Fee Game
How to Beat the Big Banks at the Fee Game

I haven't paid much attention to the hysteria over Bank of America's (BAC) new $5 monthly fee to use its debit cards, and the announcement by competitors that they won't follow suit. Why? Because I keep my money in two local banks that pay me for using their debit cards. And the accounts are free -- no fees.

What I can't figure out is why everyone else doesn't do this.

I moved my entire emergency fund into two high-yield checking accounts back in 2007, a local one for convenience, and an institution with three branches in a Southern state that I opened online. Back in those days, you could get really juicy returns -- up to 5%. Now, the best accounts offer half that. But hey, I still prefer to keep my money in a bank that pays me rather than me paying them.

Here's how high-yield checking works: You must swipe your debit card, using a signature rather than a pin number, about 10 times month. You agree to get your statements by email, use online bill-pay, and make one direct deposit or ACH transfer a month. (An ACH transfer is when you sign up at the website of some entity you pay monthly -- power, cable, mortgage company, etc. -- and they automatically withdraw the money from your account).

In return for this, one of my banks pays 2.15% on balances up to $25,000. The other offers 3% on balances up to $15,000. There are no minimums, no fees, no ATM charges -- and I get reimbursed for fees charged by other banks' ATMs. If you blow it -- as I did last month by only swiping nine times -- you get either no interest or nominal interest for the month. But so what? At least I got pocket change for the parking meter, and I didn't pay anything. (Failure to meet the requirements also means you won't get reimbursed for foreign ATM fees, though, so I make it rule only to use my bank's ATMs).

An Hour of Your Time

I found these accounts by entering my zip code on, a website run by BancVue. It's a Texas-based software company and the technology backbone of the vast majority of the high-interest checking accounts provided by small banks and credit unions. BancVue monitors and analyzes the profitability profile of each customer within each institution to ensure that collectively, the accounts offer enough profit to the bank to justify the interest rates on its checking accounts. (If they don't, you'll see the rate offered drop.)

Local banks can offer interest on checking because the requirements described above reduce processing, printing and mailing costs, and the debit transactions generate interchange fees -- charges paid by merchants for debit swipes -- for the banks. New regulations just shrank those fees, capping them at 24 cents per transaction. The previous average was 44 cents. But small savvy banks figure out how to share that 24 cents with you. Big greedy banks take the 24 cents per swipe and also charge you another $5 a month for using the card.

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Now don't give me any excuses about what a giant pain it is to switch to a new checking account. Balderdash. Of course banks want you to think it's a huge deal, so you'll stay put and pay stupid fees. But it's not. One year, I switched accounts three separate times. It takes all of an hour to open a checking account online and write down the addresses of all the companies in your online bill pay and reenter them into the new account.

If Bank of America is going to charge you $5 a month, that's $60 a year. Spend an hour changing banks and you've made $60 in a 60 minutes. Personally, I'd invest the hour as a matter of principle. (Repeat after me: I will never pay a bank for the privilege of keeping my money.)

If you aren't organized, if you don't like jumping through hoops, you'd still do better with a free account than a fee account. I jump through the hoops because it's fun to beat the big banks at their own game, and it's fun to make interest every month that I can spend on something fun. It helps that I'm a personal finance geek who tracks my spending to the penny using online software. (The technology does the heavy lifting; I only spend five to 10 minutes a week on it.)

And I'm sure some of you will question the wisdom of keeping my emergency fund in a checking account because of fraud issues. But most banks have the same zero liability policy on their credit and debit cards if you report the fraud promptly. The difference is if thieves steal your credit card, you can protest the charges and refuse to pay them; if they pinch your debit card and pin number, say adieu to your cash – and hello to the hassle of getting it back. I don't really worry about this since I see my transactions every day in the two minutes I spend online with my budgeting software. (The software is linked electronically to all my accounts so transactions appear automatically within 24 hours, and sometimes in real time.)

So come over from the dark side. Even if you don't jump through the hoops, you may still do far better in a free high-yield checking account with a small bank or credit union, where your money won't suffer the death of a thousand fees.

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