With New Fees Big Banks Force Customers Toward Cash and Prepaid

by Ben Jackson 0

The media has given a lot of attention toBank of America’s announcement that it will begin chargingcustomers $5 a month if they use their debit cards to makepurchases. Bank of America is not alone in this, as other nationaland large regional banks have looked to impose similar fees. On theflip side, these banks say that customers can continue using theircards in bank-owned ATMs for free.

This has two effects for the low-balance account-holder. First, itmakes cash seem a lot more attractive, and second it makes prepaidcards seem like a better option for financial services.

On one hand, despite the outcry over the new fees, many customerswill be reluctant to switch banks and inertia will cause them topay the fees without too much thought. Others will becomecash-oriented, making more trips to the ATM. This may benefitmerchants who regard cash as the lowest cost payment vehicle. Muchwill depend on whether or not general merchants will follow theexample of gas stations and begin offering discounts for cashpurchases. If so, these two factors in combination may cause theuse of cash to climb.

For those customers who prefer to use a card for transactions andthose for whom other fees and costs make bank accounts costly, theymay find a switch to a prepaid card is their best option. Mostprepaid cards charge fees that are $5 or less, and many fees arewaived when the customer signs up for direct deposit. In comparisonwith a checking account that charges $5 for a debit card, theprepaid industry has a stronger case that its products serve as alow-cost option for receiving financial services.