Is your debit card draining your checking account?

Debit cards are incredibly convenient. They eliminate the need to walk the streets with cash tucked in your pocket, and most offer the same fraud protections as credit cards. However, they also have the potential to drain your checking account if you're not careful. Not only do studies show you are likely to spend more when using plastic, some banks are putting an end to free debit card usage.

So is it time to hang up your debit card? Only you can make that decision. And if it looks like your debit card may be costing you more than it's worth, take the time to compare checking accounts for a better deal. After all, you want a checking account that will help you find financial freedom instead of sending you to the poorhouse, right?

The perils of plastic

Ask any fan of personal finance guru and radio talk show host Dave Ramsey and they will tell you using plastic is dangerous for your bank account. Ramsey is fond of reminding his listeners they will likely spend 12-18 percent more when paying with plastic. According to Ramsey, we may have trouble parting with cold hard cash while plastic can lead to impulse buys.

Apparently, Ramsey's numbers come from a study conducted by Dunn and Bradstreet, a business information firm. However, that study isn't the only one to support the idea that paying with a card can lead to overspending. A 2008 report published in the Journal of Experimental Psychology found that cash discouraged spending while credit or gift cards encourage it. Finally, business Web site bnet.com quoted one executive of a credit processing firm as saying that most businesses see a 40 percent jump in ticket sales when implementing credit card transactions for the first time.

Of course, most of these reports focus specifically on credit cards and you're using a debit card, right? Well, it stands to reason that if a credit card leads us to spend more because there is less "pain of paying" than with cash, the same is likely true with debit cards. Other perils of debit card usage include checking overdrafts if you fail to balance your checkbook regularly. The lesson? Tread carefully when using your debit card and be sure to enter transactions into your account register immediately.

Debit card fees on the rise

Beyond simply encouraging overspending, debit cards can cost you money in the form of bank fees. Many banks and credit unions limit how many PIN transactions you can complete for free each month. Exceed that number and you could see fees of up to $2.00 or more each time you use your debit card with the PIN.

Many savvy individuals have been able to avoid these fees by using their debit card as a credit card. Cards backed by Visa and MasterCard can be swiped like a credit card--no PIN needed. This effectively transfers the cost of using a debit card to the merchant and financial institution that pick up the fees charged by Visa and MasterCard for this feature.

However, some banks are getting wise to the fact swipe fees are cutting into their profits. Look for some accounts to start charging fees simply to use your debit card. According to a New York Times report, Wells Fargo will soon begin piloting a $3.00 monthly activity fee for debit card holders in Oregon, New Mexico, Nevada, Georgia and Washington. Other banks implementing debit card fees for certain checking accounts include SunTrust Bank, Regions Bank and Chase.

Compare checking accounts for the best deal

Fortunately, it can be easy to avoid the fees if you are willing to shop around. Competition in the banking industry is fierce. Consider taking your business elsewhere if your current institution starts piling on the fees. The Internet makes it easy to compare checking accounts. In addition to fees, don't forget to consider interest rates, hold times for checks, ATM availability and perks such as rewards programs.

Online checking accounts are another option worth a second look. Since online banks have no branches and less overhead, they may be able to charge fewer fees. The best checking accounts will even pay you interest, no minimum balance required.

Whether you opt to stick with your current bank or search for a new one, remember that no checking account can help you avoid overspending. If you find that you are consistently exceeding your budget, it may be time to start using cash for daily purchases.

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