Debit, schmebit!
May 22nd, 2007 | by
mbhunter |
If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
This article on MoneyCentral got my attention with the title:
Debit cards: A good deal gets better
Actually, I thought: “This, I gotta see.” Apparently, most of the major banks are now (a) eliminating the fees that they pass on to customers from debit transactions; (b) extending some account protection similar to that offered by credit cards; (c) offering rewards programs similar to many credit cards.
I don’t recall ever willingly doing a debit transaction because I pay off my credit card balance in full each month. Why (a) lose use of the money immediately, (b) not get rewarded for it, and (c) potentially get charged for the privilege? Of course, every merchant would love me to do a debit transaction as opposed to a credit transaction because it saves them money. They pay for credit transactions; the bank pays for debit transactions. You don’t see signs for minimum debit card charges, but you do see signs for minimum credit charges (though you shouldn’t — it’s against Visa’s policies).
I guess it’s sort of a good thing that more banks are doing free or almost-free debit transactions. Competition does improve things for customers. But I don’t agree that debit cards were ever a “good deal.” It’s a cost of doing business for the banks, and although it’s not nearly as expensive to process these transactions as it is to process checks, it doesn’t as checks .
But besides making money off of loan interest, banks also make money off of customers who don’t always pay close attention to their personal finances. Debit transactions (like credit transactions, admittedly) are so fluid it’s east to forget that you’re actually spending money. And when you overdraw your account, it’s a sure bet that they’re not tracking you down on your cell phone the moment the electrons hit their computer system. Of course not! They send you a letter so that you have the opportunity to overdraw a few more times before you catch the error. (Not that I’ve done this more than twice.)
So even though free debit transactions cost the bank up front, if more people use them more often then more people will screw up and get charged those overdraft fees. (The article mentioned overdraft risk only once, but these fees are going up.)
Thanks, guys, but I’ll keep using my cash back credit card, pay off the balance each month, earn interest on the float, AND have you pay me for the privilege. 
| 2.5 |
10 Responses to “Debit, schmebit!”
By Patrick on May 22, 2007 | Reply
I admit I have used my debit card for years. I actually get 0.5% cash back by using my debit card (by selecting credit at the point of sale) and there is no risk of me missing a credit card payment and incurring interest. It adds up to a few dollars a month.My wife uses a cash back Discover Card which does pretty well for us.
I recently got a rewards credit card through my bank, but the deal was so good (0% interest for 12 months on anything charged or transferred within the first 2 months) that I put some existing debt on it to let it sit at 0% interest. When I pay it off just before the end of the 12 months, I will start using the rewards card again to get more cash back.
By Chris on May 22, 2007 | Reply
Using a debit card is no different than writing checks. Quite often, the checks are processed electronically anyway. Rather than a handwritten ledger, I keep track of my transactions via a PDA software called Checkbook from Ultrasoft.com ($20, but worth it) - plus they also have a version that syncs with MS Money.
I really dislike the argument “debit cards are bad because you can overdraft easily.” Well, don’t overdraft. As well, and I wrote about this myself, my bank holds all debit transactions for a day or two before they clear. If for any reason I overdraft, I can immediately transfer funds to cover it and when everything clears, the overdraft will vanish.
Also, just about every bank offers overdraft protection with a credit card. Thus the ‘penalty fee’ for overdraft is around $10, not $30. To that end, if anyone is likely to overdraft their checking account, they are also likely to fail to pay their credit card in full within the grace period (or overspend and be unable to pay in full), so they’d end up paying a chunk of interest anyway.
Both debit cards and credit cards can be used in such a way that benefits the consumer, but both require good management. I also cannot imagine that automated debit transactions cost a bank more than running ATM machines or processing hand written checks. It is in the banks best interest for us to use debit, even if we don’t all overdraft.
By Nathania Johnson on May 22, 2007 | Reply
While I can get carried away with my debit card, I would have so much more debt right now if I’d had credit cards. As it is, I’ve never had one. But I’ve been such a spender, I’m so glad I never did. I’ve put off payments for other loans so often, that I surely would have racked up $ on a credit card. I’d really be in a tough spot right now.
So credit cards are only good in the hands of the responsible. I’d rather pay a few overdrawn fees than in thousands of dollars more worth of debt.
By Patrick on May 22, 2007 | Reply
I admit I have used my debit card for years. I actually get 0.5% cash back by using my debit card (by selecting credit at the point of sale) and there is no risk of me missing a credit card payment and incurring interest. It adds up to a few dollars a month.My wife uses a cash back Discover Card which does pretty well for us.
I recently got a rewards credit card through my bank, but the deal was so good (0% interest for 12 months on anything charged or transferred within the first 2 months) that I put some existing debt on it to let it sit at 0% interest. When I pay it off just before the end of the 12 months, I will start using the rewards card again to get more cash back.
By Arlington on May 22, 2007 | Reply
I agree that if consumers are as responsible as you are with their credit cards that they can work out well, but too often people’s credit card debt gets out off hand and it can cause a lot of problems. And the reason that places have minimum credit charges is because businesses can actually loose money off of your purchases because of the fees credit card companies impose on the transactions. That’s why credit card companies have rewards programs – it provides an incentive for consumer to make the purchases that credit companies make their fee money off of which actually comes back to hit the consumer later when businesses have to raise prices in order to just make a profit. The IndyStar wrote a really good article about it yesterday: http://www.indystar.com/apps/pbcs.dll/article?AID=/20070521/BUSINESS/705210336
you should check it out. I group that I work with, http://www.unfaircreditcardfees.com/, also does research on it and they also have some other interesting stuff you should read before advocating credit cards.
By Stan on May 25, 2007 | Reply
Actually, it costs a retail establishment more to accept a debit card up to a certain dollar amount per sale. After that, it’s cheper to use a debit card as a debit. Don’t worry the banks are making money on both ends of the deal.
By Stan on May 25, 2007 | Reply
And it also costs a merchant more to accept a rewards card. You didn’t really think those rewards were free did you?
All these costs are rolled into the price you pay
By Ordinary credit cardholder on Jun 8, 2007 | Reply
No doubt, debit card has its positives and negatives and I have used it untill get my credit card. Now my credit is quite good and I am such an active traveller therefore I have applied for airline credit card and have already earned bonus miles and save some money.
By IVA on Aug 1, 2007 | Reply
You have to be so careful with cards - it’s hard not to get sucked in. Store cards are the worst - they lure you in with offers of discounts but the interest rates are higher than any credit card you’ll find!