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Good or Evil – Debit Cards ?

© Norine Peardon, September, 2009

moneygraphic

Unfortunately, banks are aware of the poor spending habits of its customers, and have really sucked people in, thinking a debit card serves them well.  For the record, debit cards can be real evil;  I have not discovered the good!

In the “old days”, banks charged their customers sometimes just a monthly fee on a checking account and sometimes, a fee per check, and sometimes, both.  Slowly, due to competition and needing depositors, “free checking” was incorporated into the banking industry.

What most people do not understand is that the banks invest any money you deposit.  For the most part, a lot of the deposits are actually invested in the stock market.  Then the bank will pay a small amount of their returns to you as interest on your checking, CD or Money Market account.

Another way that banks generate revenues, is by lending your money to other customers as loans.  The interest paid on your loan is bank revenue.  Types of consumer loans are personal, mortgage and auto.  As assets(deposits) drop, banks will advertise their “special” rates for their various products (checking, CD’s and Money Market accounts) to increase deposits.  When they have an abundance of deposited assets, then they will advertise competitive rates on loans.

Now that we have looked at a little background as to how banks operate, let us take a look at debit cards.  Debit cards work like cash. . . you spend directly from your account at the bank.  Before the emergence of the debit card, if you were making a purchase, you would pull out your wallet or a wad out of your pocket and quickly count how much money you had to determine if you could cover your purchase.  The debit card is supposed to be a more convenient and safer way to pay in cash.  However, it rarely works as planned because when you are making your purchase, you probably are not aware of what your balance is or know you do not have enough to manage the purchase.  The banks love this system because they make a lot of money on your overdrafts which ends up costing you a lot more for your purchase.  To make matters even worse, the banks, up to now, have been processing your most expensive purchases before the smaller ones . . hence, you would be charged for more overdafts than if the bank processed your purchases as they would come into the bank.  Example:  You purchase items for $6.00, $5.00 and $200.00.  The bank would process the $200 purchase first and then the $6.00 and $5.00 so you would be charged 3 overdraft charges, not just one for the $200 purchase.

To consider the debit card as a safer way to pay for purchases is a misnomer.  Plastic cards are no safer (and probably less safe) than credit cards.  Lose one or have someone hack your account number or steal your identity, and your problems are just beginning. If you know someone that has experience with this, ask them about their nightmare !

I conclude that a debit card can be a real nuisance, costly and a number of headaches but mostly, evil.  Some people find them good. Personally, I long for the simplicity of the past and will never apply for a debit card where all costs are borne by me for the benefit of the bank and, on top of that, they are using my money to make money!  Is it any wonder, that all banks have big, beautiful and new premises?

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