The Math Behind Bank Of America's New $5 Fee

Bank of America set off howls of outrage with its announcement that it will begin charging customers who use debit cards to make purchases a $5 monthly fee.

The timing of the announcement, just before today's (Saturday)  implementation of new, lower “swipe fees” for banks, is probably not an accident. The $5 fee is designed to make up for Bank of America's loss of revenue, with consumers paying the full freight.

The charge isn't doing much to prop up Bank of America's standing with its customers.  A ConsumerAffairs.com analysis of 980,000 comments on Facebook, Twitter and other social media and blogs found net sentiment sinking from 45% positive to 20% negative over the last year.

Blue line shows net sentiment

It all adds up

Why $5 a month? Because that's a reasonable amount to assume the bank will lose per customer under the new fee structure. The old fee was 44 cents per transaction and the new maximum fee is 24 cents, making for a loss of 20 cents per transaction per customer.

Assuming the average customer makes 25 debit card transactions each month, that's $5 per customer that Bank of America is losing under the new swipe fee. Charging each customer who uses a debit card to make a purchase an extra $5 a month, the bank makes up for the lost revenue.

Interestingly, the $5 fee will not be charged to consumers who have a debit card and use it only at ATMs. ATMs have their own set of fees, not affected by the new swipe fee rule.

In the debate earlier this year over changes to the swipe fee rule, retailers argued paying 44 cents per transaction posed too heavy a financial burden. Banks countered that if the fees were lowered, the difference would have to come from somewhere.

Blue line shows net sentiment

Consumers have options

With Bank of America's new announced debit card fee, and with other major banks testing the concept, it's clear consumers will have to pay the difference. Of course, consumers are not powerless when it comes to avoiding the fee.

Many smaller banks provide more consumer-friendly service that don't charge fees. With direct deposit and online banking, the bank doesn't even have to operate a branch in the city where you live.

Credit unions are another alternative. Offering almost all the same services as a bank, these non-profit institutions have fewer, and lower fees and generally rank much higher in customer satisfaction.

ConsumerAffairs.com analyzed 460,000 consumer comments about credit unions over the last 12 months and found consumers positively aglow.  Net sentiment climbed from about 60% positive a year ago to about 80% positive today.

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Sentiment analysis powered by NetBase