Jan 28, 2015

Question of the Day: What’s the Cost of that Debit Card Swipe To Your Local Grocer?

Answer (from The Guardian):  21 cents/transaction (down from 44 cents in 2010).

This may seem like a trivial amount but think of the volume ($1.4 trillion, see if students capture the error in the article).  Those so-called interchange fees represented about $16 billion in fees that banks received annually from retailers, who presumably passed that cost on to consumers.

So, what’s the problem with the fee being reduced to $0.21 (which by the way, the Supreme Court ruled cannot be raised)?  

You guessed it.  The banks saw a multi-billion dollar source of fees reduced and obviously need to make it up elsewhere:

Banks have been lobbying relentlessly, but in the meantime they have found a more effective method: taking the difference out of consumers’ bank accounts. Is it a coincidence that since the passage of the Durbin amendment, banks have boosted the size of the balance required to qualify for free checking? Monthly account maintenance fees – and all other kinds of bank fees – have also soared.

So, next time you curse that monthly account fee that you pay your bank for the privilege of having a checking account, know that it probably has something to do with that interchange fee reduction.

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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