Many banks have transitioned their customers from traditional bank-branded debit cards to new Vista and MasterCard check-cards which allow you to use them just as if they were a credit card, but instead of putting the money on a revolving credit line, they simply take the money out of your checking account. It sounds like a simple and easy way to pay for one’s products electronically, but there’s a lot more going on behind the scenes that most people don’t realize when they swipe their card for the first time. Visa and MasterCard check-cards are terrible financial products for a number of reasons.
These check cards are extremely costly for merchants to process. If you choose the credit card option, the merchant will have to pay between .7-25% of the item’s price in processing fees to the bank and credit card company. If you were to chose the debit option, the merchant would probably only have to pay .35-.55 cents for that same transaction. Some banks will now even charge their customers fees when they use the debit card option on their check card.
You are also much more likely to have your checking account compromised and become a victim of identity theft when you use the credit option on your check card instead of using the debit function. Consumer Reports states that you are actually 17 times more likely to have your checking account information stolen if you use the credit option.
With a credit card, your charge will be rejected if you go over the limit, but that’s not true with debit cards. Often the banks will approve charges to your checking account even if it causes you to go into overdraft. They will then be able to collect upwards of 1000% in interest on over-draft charges. If you do use a debit card, make sure to keep the equivalent of a check register with you so that you are sure never to over-draw your account.
Finally, when you use your debit card to pay for gasoline, a hotel room, or a car rental, you can have the money in your checking account tied up for days. Quite often the companies you deal with will put a hold on your account when you purchase these services in the event that they need to charge you additional fees, say if you caused damage to a hotel room. You would then think that you had money in your account that you technically don’t. This could easily put you into overdraft if you don’t know that a hold has been placed on some of the funds in your account.
Because of all of these down sides, it’s usually favorable to put all of your spending on a credit card, as long as you can handle using a credit card without over-spending. It might be beneficial to use a debit card if you have had trouble with credit card debt in the past, but otherwise you should go with a credit card.