Bank Deal: Earn 1.00% APY on an FDIC-insured savings account at Barclays Bank.
If you’ve followed this site for any length of time, you’re likely aware that I’m not a huge fan of debit cards. While I recognize that they can be quite convenient at times, debit cards simply have too many disadvantages for me to use one instead of a credit card.
In the past, my biggest concern has been fraud. While debit card issuers typically offer fraud protection on par with credit cards, fraudulent activity typically results in an investigation before the questionable charges are eventually reversed. I’m not sure about you, but I don’t want a portion of my bank balance tied up with things get sorted out.
Fees, fees, and more fees
Well, after reading this article, I now have one more reason to dislike debit cards: overdraft fees. I know what you’re thinking — any responsible debit card user won’t overdraw their accounts, but…
We’re all human, and it might happen. In fact, it did happen to Peter Means, who’s been using a debit card to reign in his spending, but wound up getting hit with seven different $34 overdraft fees in a single day.
“[Means] was stunned when his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account, notifying him only afterward. He paid $4.14 for a coffee at Starbucks â€” and a $34 fee. He got the $6.50 student discount at the movie theater â€” but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws â€” and yet another $34 fee. All told, he owed $238 in extra charges for just a day’s worth of activity.”
To make matters worse, he had actually deposited sufficient funds a few days earlier, but it took too long for these transactions to clear.
Doing us a favor?
The problem here is that banks allow customers to overdraw their accounts without warning. Sure, they call it “overdraft protection,” as if they’re doing you a favor but they don’t actually ask if you want it. And why would they? Banks are expected to collect tens of billions of dollars this year on overdraft fees alone.
Compare that to the situation with credit cards. Under the terms of the CARD Act of 2009, cardholders will have to opt in for approval of over-limit charges. In other words, you can protect yourself from inadvertent credit card fees.
Rep. Carolyn Maloney (D-NY) has actually introduced legislation to level the playing field between credit cards and debit cards by requiring consumer consent before banks can permit (and charge for) overdrafts. The legislation would also regulate overdraft fees and prohibit banks from maximizing overdraft fees by manipulating the order in which transactions are posted.
Of course, such restrictions will come at a cost. If banks lose overdrafts as a major profit center, some industry experts are predicting that they’ll start charging monthly service fees on formerly “free” checking accounts. That way we can all share the joy.
Source: NY Times
- How to Become a Millionaire
- How to Get Out of Debt
- The Best Dollars I've Ever Spent
- How Our Estate Plan is Structured
- How We Paid Our Mortgage In Less than 10 Years
- Money Making Ideas
- How to Manage Your Asset Allocation with Multiple Accounts
- Consumption Smoothing - Save While the Saving's Good
- How to Save on Groceries
- How Much Life Insurance Do You Need?
- Eleven Great Books About Money
- Dave Ramsey is Bad at Math (692)
- Dish Network Customer Service SUCKS (534)
- $8,000 Homebuyer Tax Credit (429)
- Pay Off Mortgage Early or Invest? (424)
- How to Claim the First-Time Homebuyer Tax Credit (352)
- Termite Control: Sentricon vs. Termidor (325)
- How Much Should You Pay a Babysitter? (284)
- Ethanol Blended Gas = Lower Mileage? (272)
- Reduced Credit Limits? Share Your Experience (256)
- $15,000 Homebuyer Tax Credit (242)
- Buying Furniture off the Back of a Truck (227)
- Will Mac OS X Lion Kill Quicken 2007? (191)