Debit vs. Credit Cards

[4570Man]

When I've dealt with situations like that (large purchases of cycles, snowmobiles, tractors, cars) any dealer I've worked with has capped the amount you can put on a card towards purchase (usually a down payment). Typically $500 or so. For exactly that reason... because it is going to cost them around 3% on that money and that isn't factored into the cost model for a product like that (unlike buying a TV at Best Buy, for instance).

I paid for 22k worth of bricks with a cc. They wouldn’t accept a check upon delivery and I didn’t want to drive to the next town over to hand deliver the check. I was surprised they went for the cc without extra fees.

 

[KennyG]

Some of these discussions get me thinking and then I waste time on the internet. Turns out debit cards used to offer cash back but the Dodd-Frank legislation capped transaction fees and reduced the margin to allow rewards. It looks like there are still some that offer 1%. The article is several years old, so I'm not sure how much has changed.

7 Debit Cards That’ll Give You Cash Back (and More!) for Swiping

 

[Torvy]

There is legislation headed to Congress to help combat high CC swipe fees, which are up to eight times higher in the US than most of the EU. (Credit Card Competition Act) According to an article I just read swipe fees are the major banks highest money maker, greater than interest and late fees. Retailers are all for lowering fees, banks not so much. We all pay the average 2.25% retailer fee however we might pay for an item.

So what exactly do they think is going to happen when/if that goes through?

Stockholders (regular people with 401k) want ROI. Banks are not going to just laugh and say 'shucks, the smart government guys figured us out'. The fees are there because it costs to process for the retailers. Fees vary depending on the volume, risk, etc. Banks will charge higher fees directly to the customer and/or make credit less available to higher risk consumers. The law of unintended consequences always rears its head when government officials try to tinker with the economy. Most of them are simply too poorly versed in how things work and how the market will respond to their actions.

The retailers already have the prices baked into the fees, even though for most of them, cash handling is more expensive. Retailers who do a lot of cash work (especially those who encourage cash) are at risk for, and may already be used as money laundering locations. Many also want cash to pay 'off book' for undocumented workers.

Debit cards marked with a credit card logo are processed 100% as a credit transaction. The retailers pay the fees the same. The fees are for the processing, not the credit. That is why some banks will give a modest cash back on 'debit'. It works like a secured card. The cash just flows in real time. Half of the retailers (or at least their employees) have no clue and may erroneously give a discount to someone using a debit card that is still costing the retailer.

As for Amex, they are the biggest charlatans in the credit card world. Cards are accepted in 1/5 the places because they charge so much and in most cases, they have a hefty annual fee, to boot. Most of their products are marketed as a charge card, where the full balance is due every month. That is fine for those of us with the financial acumen and/or resources to do that, but the poor schmuck who cannot pays even higher fees than with a credit card with clear revolving credit. There are many credit cards that offer better features for consumers than Amex. Amex has some good features for business use, especially if you have many employees who need a card...of course, the big banks have taken note and often market a business card that will compete.

 

[Yander]

From what I have seen, people with extremely poor financial habits use their credit cards and don't pay the balance at the end of the month. Equally bad are people who use a debit card with no money in the bank to back it up. People who have a little better, but still less than ideal, financial habits regularly use their debit cards within the limits of their finances (mostly young people seem to do this). The smartest way is to use a credit card with a high payback rate and religiously pay of the balance each month.

All this is easy to say for most of us whose income is greater than our minimal expenses for necessities, which unfortunately not always true for everyone.

I think a good many people on this site have been in all of the scenarios that you mention above. I know I have. Thankfully not in the "use credit because my bills exceed my income category any longer". That is not a good place to be but early in life was there too long.

Now we use a credit card for everything and pay off the entire balance at the end of the month. We use the debit card rarely and for cash out which is also rare. I have had my card # for the credit card compromised and used over 3 times and had to call and get the charge removed. I have heard of folks getting their debit card # compromised and they got whatever money was in their checking account and the bank that that person used would not refund or insure it.

I heard someone post they have been using their debit card for 30 years with no issues, lol, no disrepect but that sounds like something my dad would say. He uses his debit card for everything and he said his credit union said it was safe. Sure they did, they going to tell you it is unsafe?

At the end of the day, people do what they feel comfortable doing. I personally do not feel comfortable with the possibility that a hacker could get to my checking account or savings account off of my debit card. You feel safe and trust your bank who says it is safe, go for it.

This is not 30 or even 10 years ago. I have to keep reminding the older folks in my life of that. My MIL who lives next door and is almost 80 still opening the door to a stranger even if she is the only one home. We think we got her to stop doing but who knows. I can't control them, all I can do is warn them and they have to make their own decision. Another thing that the older generation do and I think it is comical, they HAVE to answer that ringing cell phone. No matter what, they have to pick it up. My dad (82) has answered his phone when I called him while reeling in a dang fish, LOL. I'm going to miss that when he is gone.

 

[Yander]

Our debit card has protection against unauthorized purchases.

Yes, I'm sure that's what the banks will tell you but I have far too much money in checking/savings at any given time to trust a bank or credit union who tells me this. Just me, I don't trust them to honor someone cleaning my checking account out.

When I hear of someone losing $10k from a checking account and the bank refunded it, maybe I'll consider it with that bank. Until then, it is CC for me.

You pass your debit card through the window of a McDonalds drive through window, you just gave that person with tattoos on their knuckles your debit card number which is where your cash sits. Not for me!

 

[mikester]

I use debit cards exclusively. No high interest credit cards for me. The debit card accesses cash I hold without having to carry cash. I earn 2% on each purchase. Yes earn 2%, have for years. And the seller pays the trnasaction fee not the buyer, hope this helps

I don't ever use debit cards due to lack of fraud protection. A CC company assumes the risk on transactions and there is a dispute process. With debit the money is out of your account and you are FUBAR.

If you pay your CC balance off every month there are no interest charges. CC transaction fees are now allowed in Canada. Personally I don't want to do business with scammer companies charging transaction fees.

 

[LD1]

So what exactly do they think is going to happen when/if that goes through?

Stockholders (regular people with 401k) want ROI. Banks are not going to just laugh and say 'shucks, the smart government guys figured us out'. The fees are there because it costs to process for the retailers. Fees vary depending on the volume, risk, etc. Banks will charge higher fees directly to the customer and/or make credit less available to higher risk consumers. The law of unintended consequences always rears its head when government officials try to tinker with the economy. Most of them are simply too poorly versed in how things work and how the market will respond to their actions.

Good post.

I was gonna comment on this as well. The Govt just needs to stay out IMO. The banks will get their money one way or another.
And given the past ~10 years with super low interest rates, saying that their biggest revenue streams were transaction fees makes sense.

The fed kept interest rates down for a LONG time. Banks employ ALOT of people...they gotta make money somehow.

 

[MossRoad]

Yes, I'm sure that's what the banks will tell you but I have far too much money in checking/savings at any given time to trust a bank or credit union who tells me this. Just me, I don't trust them to honor someone cleaning my checking account out.

When I hear of someone losing $10k from a checking account and the bank refunded it, maybe I'll consider it with that bank. Until then, it is CC for me.

You pass your debit card through the window of a McDonalds drive through window, you just gave that person with tattoos on their knuckles your debit card number which is where your cash sits. Not for me!

Well, I've been with the same credit union since I was about 12 years old. My spouse has been with them since she was 19. That's 50 years for me and 42 years for her. We've had a debit card (and a credit card) with them since debit cards were available. They have notified us of unauthorized purchases on our debit cards several times over the past decade, closed our card, and got us a new one the next day at least three times that I can remember. I recall one occasion where money was spent in Canada and Georgia on the same day at clothing stores, and they found that suspicious, so blocked the account and notified us.

When we travel, they notify us of gas purchases out of state. The last one was a few months ago, when I filled up my Suburban here in Indiana (30 gallons), 6 hours later in St. Louis (30more gallons) and 6 hours after that in Oklahoma (another 25 gallons). They saw $350+ in activity in 3 states within 12 hours, flagged it as suspicious, and shut off the card. We called them, verified the purchases, the opened the card, and off we go.

I pass my debit card at every drive through window, gas station, grocery store, bar, restaurant, retail outlet, you name it. I've had the same $50 in my wallet for about 6 months. I like to have some cash when we travel, and the debit card is also our ATM card, so I make a cash withdrawal before we head out of town.

Not once have we ever lost a penny on our debit card. If you have a reputable financial institution, those fears are unfounded.

As for tattoos on their knuckles, well, that really doesn't mean anything anymore.

 

[JethroB]

So what exactly do they think is going to happen when/if that goes through?

Stockholders (regular people with 401k) want ROI. Banks are not going to just laugh and say 'shucks, the smart government guys figured us out'. The fees are there because it costs to process for the retailers. Fees vary depending on the volume, risk, etc. Banks will charge higher fees directly to the customer and/or make credit less available to higher risk consumers. The law of unintended consequences always rears its head when government officials try to tinker with the economy. Most of them are simply too poorly versed in how things work and how the market will respond to their actions.

The retailers already have the prices baked into the fees, even though for most of them, cash handling is more expensive. Retailers who do a lot of cash work (especially those who encourage cash) are at risk for, and may already be used as money laundering locations. Many also want cash to pay 'off book' for undocumented workers.

Debit cards marked with a credit card logo are processed 100% as a credit transaction. The retailers pay the fees the same. The fees are for the processing, not the credit. That is why some banks will give a modest cash back on 'debit'. It works like a secured card. The cash just flows in real time. Half of the retailers (or at least their employees) have no clue and may erroneously give a discount to someone using a debit card that is still costing the retailer.

As for Amex, they are the biggest charlatans in the credit card world. Cards are accepted in 1/5 the places because they charge so much and in most cases, they have a hefty annual fee, to boot. Most of their products are marketed as a charge card, where the full balance is due every month. That is fine for those of us with the financial acumen and/or resources to do that, but the poor schmuck who cannot pays even higher fees than with a credit card with clear revolving credit. There are many credit cards that offer better features for consumers than Amex. Amex has some good features for business use, especially if you have many employees who need a card...of course, the big banks have taken note and often market a business card that will compete.

Short answer: If the legislation passes the Rewards programs will go “Poof”, at least eventually.

 

[lman]

Well, I've been with the same credit union since I was about 12 years old. My spouse has been with them since she was 19. That's 50 years for me and 42 years for her. We've had a debit card (and a credit card) with them since debit cards were available. They have notified us of unauthorized purchases on our debit cards several times over the past decade, closed our card, and got us a new one the next day at least three times that I can remember. I recall one occasion where money was spent in Canada and Georgia on the same day at clothing stores, and they found that suspicious, so blocked the account and notified us.

When we travel, they notify us of gas purchases out of state. The last one was a few months ago, when I filled up my Suburban here in Indiana (30 gallons), 6 hours later in St. Louis (30more gallons) and 6 hours after that in Oklahoma (another 25 gallons). They saw $350+ in activity in 3 states within 12 hours, flagged it as suspicious, and shut off the card. We called them, verified the purchases, the opened the card, and off we go.

I pass my debit card at every drive through window, gas station, grocery store, bar, restaurant, retail outlet, you name it. I've had the same $50 in my wallet for about 6 months. I like to have some cash when we travel, and the debit card is also our ATM card, so I make a cash withdrawal before we head out of town.

Not once have we ever lost a penny on our debit card. If you have a reputable financial institution, those fears are unfounded.

As for tattoos on their knuckles, well, that really doesn't mean anything anymore.

Our credit union provides a credit card that gives cash back when using it. There are no fees when paying the bill monthly. I've never heard of a debit card with cash back. I see no benefit from using a debit card. We like money so we use the credit card. We occasionally use the debit card at an atm.