What You Need to Know About Your Debit Card

debit cardsDebit cards are a great convenience, there’s no doubt about that. But there are also some pretty major inconveniences that many debit card users have experienced.

I just read an interesting article on MSN Money. It was written about a year ago, but many of the points were still very valid. The title intrigued me – “How Debit Cards Fleece Consumers.”

How exactly are debit cards and the banks ripping us off?

The article was written around the time that new laws regulating credit card companies were put into action to curb industry abuse. Writer Chris Pummer called on the U.S. Consumer Financial Protection Agency to begin regulating the way the banking industry uses debit cards for profit.

Here’s what Pummer has problems with…

Banks used to make their money by taking the funds you deposit in the bank and investing it in other places. Today, they also make quite a bit of money for charging customers fees for a host of different services.

Think about it – when you use an ATM that’s out of your network – you’re most likely paying an extra two-bucks.

Banks make even more money off of overdraft fees. Let’s say you buy a bottle of water and a pack of gum at the gas station for $3.50 – but you didn’t realize your checking account was empty and you overdraft. You’ll probably get hit with a $35 overdraft fee from your bank. That’s basically like having a 1,000% (one-thousand percent) interest rate on your $3.50 mistake.

Things have changed a little since this article was written. New rules regarding debit cards went into effect just last month. It required banks to allow customers to opt out of overdraft protection.

When you decline overdraft protection, it means if you try to use your debit card without enough cash in your account – it will simply be declined. You probably have another form of payment you can use to complete that transaction. So choosing to opt out might be a good idea. Read more about it in our Check Education area under Personal Check Education.

The new rules do not apply to personal checks – and it’s worth pointing out that you can be charged overdraft penalties when using checks as well.

But here’s the difference…

Most people who regularly use debit cards rarely now how much money is in their account! But that’s not the case with people who use personal checks and a check register.

There were a ton of comments on this particular MSN Money article. Some applauded the writer for exposing the banking industry’s practices. Others touted personal responsibility – saying that if you get slammed with overdraft fees then it is your own fault.

While it’s true we should be responsible for our actions – does that justify a $35 fee on a minuscule overdraft?

One commenter said she worked at a credit union and talked to customers on the phone every day about their debit cards. The most common question she heard – “What’s my balance?” She wondered how these people could possibly not know the answer!

When you order checks online from Check Advantage you’ll get a free check register and can order extras for less than $1.50 each.

Banks and debit cards aren’t the only way using plastic can end up wasting your money. The article also brought up gift cards. When you purchase a gift card you are essentially giving that store a loan and they promise to pay it back when the person you give the card to uses the money.

But then why do gift cards expire? That company isn’t out any extra money. Yet the value of the cash you paid for that gift card somehow disappears!

The next time you have to give someone a gift. Skip the gift card – write them a personal check. It’s much less likely that check will sit around as long as a gift card. Plus personal checks are as good as cash – that money can be used wherever a person wants.

If you’re worried about your privacy – there are also reasons why using debit cards could cause concerns. The migration from paper financial transactions to electronic and online payments make it much easier for agencies like the IRS to track your cash flow. As Pummer wrote, “it reduces the undocumented flow of cash through the ‘underground economy.'”

What do you think? Read the full article at  MSN Money to learn more.

Image: Salvatore Vuono / FreeDigitalPhotos.net

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