Tuesday, July 25, 2006

Pros and Cons of Debit Cards

In this week's edition of Newsweek, Jane Bryant Quinn outlines some of the pros and cons related to debit card usage in A Debit-Card Nation.

The Pros
- You know you're spending real dollars. The purchase is pulled immediately from your bank account.
- They're an easy source of walking-around money. As with Discover Card, you can usually use debit cards to get cash at most grocery or drug stores by asking the cashier to add a specified amount to your total.
- They're a way to save. Not sure I agree with this one, especially for those folks who don't carry a balance. But if you have a lot of credit card debt, it's true that you can avoid racking up additional interest on credit card purchases by using your debit card.

The Cons
- You can't use debit cards to establish credit history.
- Very few debit cards offer decent reward programs. And for the few that do, only signature debits count towards reward points. In other words, you need to swipe your debit card, choose debit/credit, and then sign the receipt (vs. PIN transactions, where you just swipe your card and enter a PIN number).
- You risk losing the contents of your entire bank account. Although Visa and MasterCard advertise "zero liability" if you're a victim of identity theft, some banks only offer this protection for signature debits. And only if you notice and report the theft within a specified period of time. With credit cards, you're usually only liable for $50, no matter when you report the issue.

And one final piece of advice. Don't use debit cards for online purchases. "With your bank account open, you risk too much. Order by credit card or order only by phone."


Single Ma said...

I haven't used a debit card in years. It could be expired by now and I wouldn't even know it.

I disagree with all of the pros. What good are they to the consumer?

1 - you're spending real dollars -- umm, so?
2 - easy source of walking around money -- why would you need cash if you're already spending "real dollars" (#1)?
3 - they're a way to save -- how is that if it's an "easy source of walking around money" (#2)?

My comments aren't directed at you but I think this article is hogwash. LOL

mapgirl said...

I dislike my debit card because I think it's too easy to forget what your bank balance is and then overdraw by accident.

Though I have been trying to discipline myself with my debit card and it's been working. I just think back to the times where I wasn't staring at my balance every day and tracking expenses. It's only useful if you're going to track your spending each time you use it.

IRA said...

Single Ma - I tend to agree that the cons seem to outweigh the pros, but I thought it was an interesting article. To be honest, I can't recall ever having used my debit card.

Mapgirl - The article seems to imply that most folks who use their debit cards pay for overdraft protection? Seems kind of crazy to me. More fees on top of fees if, as you pointed out, you don't track your balance closely.

Andrew said...

I have used my debit card pretty much exclusively for the past several years but have recently made a transition. My wife and I are going to pull out the budgeted cash we need for things like groceries, entertainment, gas and miscellaneous items and not use our debit cards. When we use our debit cards it has proven easy to spend more than we should on eating out or little things here and there. We are hoping our new strategy will work to improve our savings.

CreditGal said...

Credit cards are way more secure that debit cards. And that's the most important point. Of course, disputing unauthorized purchases is a real apin but still, it's betetr than not beeing able to dispute anything.



WOOOOP said...