Are Debit Cards Dead

The Credit CARD Act of 2009, as well as the Dodd-Frank Act Financial Reform Act and interchange and overdraft fee reform, have reduced revenue banks earned from the credit and debit cards consumers. Banks have responded by reducing or eliminating rewards programs and other perks and increasing ATM fees to $5 and increasing other bank fees.

Some reward cards program will be funded by retailers where you use your card instead of the banks. If frequently shop at specific businesses your bank may request that the retailer offer discounts.

This however can work against consumers because it will force consumers to spend more money to get fewer discounts. Retailer claims consumers will get more discounts and offers based on their shopping history. Consumers can still get rewards with airlines, hotels and credit cards.

Wells Fargo ended it's debit rewards card program and is currently testing a $3 monthly fee for debit card users in four states. Chase, SunTrust, Continental and United ended their debit card rewards program in July 2011. Free checking at some banks such as Bank of America will also be eliminated. TD Bank still offer debit cards.

Ally Bank offers a debit card reward program that puts cash into a consumer’s account. However, consumers do not earn points or miles with every purchase. The cash is used for making purchases through partner retailers.

Perk Street Financial offers an online checking account that provides rewards for any checkcard card credit transactions. You can earn 2% cash back if your balance is over $5,000 up to 90 days.

If your balance is under $5,000 after the 90 days introductory period, you will earn 1% rewards. The bank doesn’t charge monthly maintenance fees and offer 5% cash back with partner vendors which change each month. Use financial site like bankrate.com to comparison shop for debit card reward programs to find the best deal.

Do You Have Swipe-itis

Do you use your check card/debit card to make all of your purchases? Have you stopped carrying cash? Do you feel lost without your debit card? You are not alone. There are over 520 million debit cards in use in the United States. Most of them are Visa and MasterCard debit cards.

It can be difficult to resist the temptation of the instant gratification culture of America. Advertisers make it easy for consumers to get everything instantly by creating online shopping, instant cereal, instant coffee, instant meals, instant messaging, and debit card purchases at most stores and businesses. Most Americans who have a debit card buy an item immediately when they see it either in a store or online. This bad habit has caused many Americans to overdraw their account, pay overdraft fees, spend more money than they have, damage their relationship with their bank and may lower their credit score.

No matter what form of payment you use you have to keep track of your spending. You should track your spending weekly if you frequently use a check card. This will help to see where you are spending your money and will help you to recognize errors or identity theft quickly. When you see where you are spending your money it is easier to reduce spending and make better choices when making purchases.

There are advantages and disadvantages to using a check card. Some advantages of using a debit card: it is easier to obtain versus a credit card, can be used in place of checks, accepted everywhere, transactions can be made quicker and can be used to get cash from an ATM or retail store that offers cash-back during a purchase. The disadvantages of using a debit card are: you can spend more than you have in your account; you can incur overdraft fees and can become a victim of identity theft. Here a 9 ways to stop swipeitis:

1. Pay your bills first. Put a portion of any extra money left over in a savings account.
2. Alternate payment. Use other forms of payments such as cash when making a purchase.
3. Get a receipt. Get a receipt each time you make a purchase and keep it.
4. Track spending. Take all of your receipts from your debit card purchases and put them in an envelope. At the end of each week add up the receipts to see how much you spent. Use pen and paper, an Excel spreadsheet or Mint.com to enter the data. You can import bank account transactions to your Mint.com account to simplify the process of tracking your spending.
5. Wait. Wait a few days before making a purchase that is more than $100. Go back to the store to see if you still want the item. If you still want the item, comparison shop to see which store offers the best price.
6. Retail therapy. Avoid shopping when you are emotional. This will prevent you from spending more than you have or buying unnecessary items.
7. Create a budget. Create a budget to track your spending daily or weekly. Set aside a specific amount for extra things you want. One reach that amount don’t spend anymore.
8. Leave at home. Leave your debit card at home unless you know you will make a purchase. This helps to reduce the temptation to make an unnecessary purchase.
9. Get cash. Go to the bank and take out the amount of cash you need for the week. Once you spend that amount don’t get out any more money or use your debit card unless it is an emergency.

Prepaid Credit Cards

Many Americans struggle with managing their finances either through credit cards, debits cards or bank accounts. Another option that is available for those who do not have bank accounts, have bad credit or who have a hard time managing their money is the prepaid credit card.

A prepaid credit card allows you to have your paycheck, unemployment or benefits loaded onto a credit card which can be used like a debit or checkcard. The credit cards work like prepaid telephone calling cards.

A prepaid credit card eliminates check cashing fees, checks lost in the mail and provide easy access to your money. You can add additional money to your card at various locations based on the company you signed up with. There is no credit check or other requirements to obtain a prepaid credit card.

Several companies such as Western Union, Account Now, Visa, MasterCard or the American Express Pass for teens offer prepaid credit cards. You can also comparison shop on sites like creditcards.com or bankrate.com to find the right prepaid credit card for you.

Your credit card cash balance works like a credit limit on a traditional credit card. You will not be charged a fee for overdrawing your account. There is no minimum balance and free direct deposit. Some companies also offer online banking and bill payment. You will never be charged late fees or interest. However, you may be charged registration fees or other charges for using the prepaid credit card. Extra fees may also be charged for adding additional money to the credit card outside of your regular deposits.

Prepaid credit cards help control your spending. You can control over your spending limits and are great option for teens or college students. Once you activate the card you are able to start using it. Each time you make a purchase the amount is automatically deducted from your credit card balance. This forces you to keep track of your balance so you will never go over your limit because you can only spend the money you have on your card.

Be sure the company reports your payment history on your credit report to help establish your credit history or improve your existing credit history.

Debit and ATM Cards Changes on July 1st

Under the CARD Act of 2009, for new accounts opened on or after July 1, 2010, your bank can no longer charge overdraft fees for debit and ATM transactions unless you opt-in. If you open a new account before July 1, 2010 your bank will consider you an existing customer and you will receive a notice about your bank's overdraft services.

You can grant permission by opting in to the overdraft notice your bank sends you. If you decide to opt-in you can cancel at any time. If you do not opt-in before the deadline you can opt-in in the future.

For existing accounts if you do not opt-in by August 15, 2010, your bank's standard overdraft services won't apply to your debit and ATM transactions and future transactions will be declined when you don't have enough money in your account, and you will not be charged an overdraft fee.

Currently, for standard overdraft services your bank will cover the transaction by charging a flat fee of $20-$35 each time you overdraw your account.

If you have an overdraft protection service your bank provides a line of credit that is linked to your savings account to cover transactions when you overdraw your account. Banks charge a fee each time you overdraw your account.

However, using the overdraft protection service may be less expensive than using the standard overdraft service. Keep in mind that some banks report overdrawn accounts on your credit report so it may be wise to sign up for overdraft protection.

The new ATM and debit card overdraft guidelines do not affect checks or automatic bill payments.

Another Reason to Use Cash

Over the Memorial Day Weekend, one million Starbucks customers were overcharged. Those overcharged used their debit cards were charged twice. Their receipts were correct but the money was taken out of customers bank accounts twice. Starbucks has since reimbursed most customers but some customers have not yet been reimbursed.

This event is even more reason why it is so important to verify your bank accounts. The fee for an overdrawn bank account ranges from $29-$35 depending on the bank. Also, you risk the chance of having the overdrawn account reported on your credit report which can lower your credit score. It is better to pay for items with cash instead of using a debit or credit card for everyday purchases. Here are 4 ways to ensure you are not overcharged when using a debit card.

1. Read the agreement. Read the policy agreement for your debit card to determine the course of action if you are overcharged on your account.

2. Reconcile. Verify your bank accounts weekly if not daily. Keep all of your receipts and verify them with your monthly statements to check for errors.

3. Use like a credit card. Use your debit card for occasional purchases or for unexpected expenses.

4. Pay with Cash. Pay for items with cash. You don't have to worry about having an overdrawn account. This also helps you to be more accountable and spend less frequently. There is something about a swiping a card that makes consumers want to spend.

Decoupled Debit Cards

Decoupled debit cards are where one institution issues a debit card that can be linked to any bank account and used for purchases and ATM withdrawals just like debit card consumers get from their bank when they open a checking account. The company pays a fees plus any interchange income.

Pros
1. Can charge rewards to combat the decoupled credit card.

2. Can get features such as free checking, free cards and transaction payout (reward), go online to view cash rewards accruals.

3. Can earn points on debit card purchases for having additional bank products such as money market accounts, CDs, loans, lines of credit, etc.

4. Combines the ACH industry and the payment networks such as Visa, NYCE, etc.

5. The intermediate service provider can capture the interchange income from the card transaction which would previously go to the consumer's financial institution.

6. It helps the consumer because they can use debit cards more frequently, reduce use of credit cards and no longer have to worry about fees associated with using a credit card.

Cons
1. It will hurt the financial institutions by eliminating income from banks that rely heavily on charges such as insufficient funds, etc.

2. Deprives credit unions of transaction fees but who will still have to pay ACH fees.

3. Targeted to 18 to 34 year olds who are generally are more internet savvy and may not be concerned about their relationship with their bank.

4. The transaction is performed and settled online over the branded payment networks between the merchant and the intermediate sevice provider but is settled with the consumer's financial institution using the offline ACH network.

5. Can increase risk to the consumer such as account validation which was not a risk in the previous transaction system.

Be cautious when using decoupled debit cards and be sure to pick the card that is right for you.

5 Reasons to Use Debit Instead of Credit

Use Debit Instead of Credit

According to The Nilson Report, debit card purchases are expected to increase 13% in 2008 to $1.2 trillion versus a 3% increase for credit card purchases or $1.9 trillion. This year, Visa debit card transactions could exceed credit card transactions.

For banks this is not good because they are not able to collect interest on debit transactions but helps their accounting department because they don’t have to report any losses when consumers fall behind on credit card payments.

However, banks also charge overdraft fees for debit card transactions when consumers do not have enough money in their accounts to cover an item purchased. Fourteen out of fifteen of the largest banks in the U.S. charge overdraft fees for consumers who exceed their funds.

Overdraft fees ranges from $20 to $35 per occurrence. Banks are responding much quicker to consumers who exceed their funds by charging overdraft fees the same day or the next day. In the past banks would wait a few days before charging the overdraft fee.

To combat this practice the Federal Reserve has proposed rules to restrict these abusive practices by banks.

Here are 5 reasons why use should use a debit card versus a credit card:

1. You don’t pay interest or finance charges

2. You can only spend the money you have in your account, however, some banks do allow you to exceed your funds but you are charged an overdraft fee

3. You can use debit cards or Visa check cards at many of the same retailers that accept credit cards

4. Helpful for those with bad credit who are unable to get approved for a credit card

5. Can be used like a credit card by swiping the card without entering a PIN