I’m puzzled why Canadians love paying for everything with their debit cards.  Interac Direct Payment became available nationally in 1994, and in just six short years debit cards have replaced cash as our primary payment method.  By 2001, Canadians became the undisputed world leaders in debit card use.  Yet we are paying for the privilege of using our debit cards through excessive debit card fees and limited monthly transactions.

There are certainly benefits to using debit cards as our preferred method of payment.  Unlike a credit card, you can’t spend what you don’t have.  You can only spend what is already in your account.  Since the debit is immediate, your account balance is always up to date.

Debit cards are also useful for shopping or for services where credit cards are not accepted.  Best of all, there is no bill at the end of the month.  You are able to keep track of your account balance at any time.  The service is convenient, fast, safe and reliable, with less risk of loss or theft of cash.  It is also faster than writing a cheque.

Related: Save Money Shopping Online With Great Canadian Rebates

So now we’re faced with an addiction to debit cards and our banks are raking in the profits from monthly chequing account fees and additional transaction charges.  Debit card fees are costing us money.

Debit Card Fees: The Student Trap

It’s easy to pinpoint how this habit starts to form.  Free student chequing accounts have been around for years and include a higher number of transactions than a regular account (25 to 30 free debit transactions per month).  Students can also opt for unlimited transactions for a small monthly fee.  4 years of unlimited debit card use is certainly enough to modify our spending habits.

The problem is that after finishing school these young adults lose their free student banking privileges and end up paying upwards of $14.95 a month for a regular chequing account.

I’ll admit that I fell into this trap once I got out of school and was no longer eligible for a free student chequing account.  I used my debit card for everything, so my bank recommended that I sign-up for the unlimited transaction chequing account for $14.95 per month.  Not only that, but my wife was talked into getting the same account after finishing school, so now we were paying $30/month in debit card fees.

We lived paycheque-to-paycheque in my first year out of school, so it didn’t even occur to me how much money I was wasting, or that I could have these fees waived by always carrying a minimum balance, or that a no fee banking option even existed.

I paid nearly $360 a year just for the privilege of spending the money in my chequing account.  This went on for about a year before I realized there was a better way.

Related: 10 fees that are worth the money

Use a Rewards Credit Card

I finally discovered rewards credit cards, which I now use for my everyday spending and recurring monthly bill payments.  Rewards credit cards allow you to earn rebates in the form of cash back or other incentives just for using your credit card.  Savvy shoppers can maximize their rewards by using their credit card for everyday spending, like on groceries and gas.

It helps to determine which type of rewards credit card best fits with your spending habits.  It doesn’t make sense to pay an annual fee for one of the top travel rewards credit cards when your monthly spending doesn’t earn you enough points to cover the fees.  Similarly, if you are spending more than $5,000 a month on your credit card, you might be limiting your rewards by sticking to a basic, no fee card.

Also remember that if you are carrying a balance on your credit card you are trading a 1 or 2 per cent rebate for 19 per cent credit card interest rate.  Not a good deal!

I ended up switching to the Smart Cash MasterCard® Credit Card and will be able to earn nearly $600 in cash back rewards in the first year alone.  That sure beats paying hundreds of dollars each year in debit card fees.

Don’t Let Your Bank Hold You Hostage

Before you ditch your full service chequing account it’s important to understand the following:

  1. Your monthly spending habits.  Look back at your last few bank statements to see how many debit card transactions you are making each month.  If it’s not more than 10 or 15, check with your bank to see what other chequing account options are available.
  2. Your monthly account balance.  Do you carry a balance of at least $1,000 throughout the month?  Depending on your account, most banks will waive your monthly account fees provided that you carry the minimum balance for the duration of the month.
  3. Your credit card balance.  Do you ever carry a balance on your credit card?  If the answer is yes, don’t even consider taking this approach with your spending.
  4. Look into a no fee banking option.  Online banks like PC Financial and ING Direct offer free chequing accounts with unlimited transactions.

We need to stop spending hundreds of dollars a year in debit card fees.  There are plenty of options out there for consumers to limit their bank fees, pay no fees, or to actually earn rewards on their every day spending.

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