“Credit Or Debit?” Part Two: “The Dark Secrets Of Debit.”

Surprisingly, a piece I wrote last month, “Credit Or Debit?” Why Your Supermarket Wants You To Pay With A Debit Card“, has become one of the most popular articles here. It came out of a conversation started over at Gothamist about the new credit/debit terminals the New York City taxicab drivers are installing, which has led to (as of next week,) taxi cab drivers going on strike three times to protest the new technology.  Many people think the ”Credit Or Debit?“ question is a convenience some stores offer, as a thoughtful service to their customers. In fact, it can be a multi-million dollar opportunity – or loss – for retailers, and you should know the whys behind the question – so you can make the best decision for you – and not them.

To quickly summarize:

”Specifically, as a merchant, you want all your customers to pay with a debit card used as a debit card, which means the customer has to swipe their card and enter their PIN. This is the least expensive transaction for the merchant. If the customer wants to use the card as a credit card (“supermarket checkout: ”Credit or debit?“) it costs the merchant more.”

As a customer, if you pay off your credit card in full each month, using a credit card is better – you can take full advantage of your credit card company’s rewards program, and earn interest on the cash sitting in your account, until your credit card’s due date. If you pay with a debit card, like cash, it’s immediately handed over to the merchant.

While seemingly unimportant, over time, the credit or debit question can mean a fair sum of savings – or loss – for you. Consumer Reports has an excellent article, published last month, which covers all these points, plus fraud, liability protection, and overdraft problems:

“When translated into an annual percentage rate, overdraft fees on debit cards can exceed 1,000 percent.”

There’s also this news, which could be extremely costly to the unsuspecting:

“When you swipe your debit card for $25 worth of gasoline, $100 of your account balance may be temporarily blocked because the system doesn’t know if you’re filling up a Miata or an Explorer until the transaction has settled,” says Greg McBride, a senior financial analyst at Bankrate.com. “If you’re running a low account balance, blocking can lead to multiple overdrafts, which is why debit cards may be fine for buying a cup of coffee but not so good to use for rental cars or hotel bills, where blocking can tie up hundreds of dollars.”

Read the excerpt here: ConsumerReports.org – The dark secrets of debit.
(via: ConsumerFight.com)

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Elsewhere, more about
credit & debit.

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Tags: cash, credit, debit, Finance, Gothamist, overdraft, strike, Taxi, Wi-Fi