A lot of people are angry with the big national banks right now for introducing debit card fees, and I've been hearing a lot of talk about just ditching checking accounts altogether and going with a prepaid debit card instead.
While I understand the impulse -- the idea of paying fees to use one's own money is one a lot of people find objectionable -- I suspected switching to prepaid might end up costing more than the $3-$5 a month debit card fees being rolled out by the big banks, so I decided to run some numbers.
In the interest of providing a level playing field, I used a generic consumer who gets two paychecks direct deposited per month, makes 10 debit-card purchases and 2 ATM withdrawals a month. I used the fee schedules from the Walmart Moneycard, the most popular prepaid card, and a Bank of America checking account, including the $5 a month debit card fee they're set to roll out. Here's what I came up with.
- Monthly maintenance fee: $3
- Two ATM withdrawals @ $2 each (because Walmart doesn't have an ATM network), plus the fee charged by the ATM itself (usually $3 each): $10
- Two direct deposited paychecks @ $3 each: $6
- 10 debit-card purchases @ $0 each: $0
- Total: $10/month, $120/year
Bank of America MyAccess Checking
- Monthly maintenance fee of $12, but waived with one direct deposit over $250 per month: $0
- Two ATM withdrawals @ $0, because BofA has ATMs pretty much everywhere
- Two direct deposited paychecks: $0
- 10 debit-card purchases: $5 monthly fee for debit card use
- Total: $5/month, $60/year
Now of course you could create a scenario where the Walmart prepaid would be cheaper, but my point is, for a lot of people, a prepaid debit card would be more expensive than a checking account with a debit card, rather than less. That's especially true since Walmart Moneycards are on the more frugal end of the prepaid card continuum, with many prepaid debit cards charging point-of-sale fees and fees of up to $5 for reloading the card.
I'm not here to defend large national banks' pricing structure. I'm just saying that moving your funds to a payment instrument that's even more expensive than the one you just angrily left. A better choice might be an online bank, community bank or credit union, which offers full-service accounts, at least some free ATMs and fee-free ways to make deposits.
What do you think? Will you be going prepaid debit, or are you going to stick with a debit card tied to a checking account?
Update: As a reader pointed out, Walmart waives the $3 deposit fee for direct deposit and waives the $3 monthly maintenance fee if you load $1,000 a month on the card. Those changes are reflected above, and as you can see, the traditional checking account is still cheaper, but not by quite as much.