Honest question. There aren't debit cards in the united states? They are simple plastic cards like credit carda but the bank is withdrawing your money directly from your account. There is not debt involved.
I don't know how general this is, but I'd say it's common for banks to cover also fraud costs for the customers in Europe. Be it fraudulent debit card payments or Internet banking transactions, I've seen news of banks covering the customer's ass on both.
Not sure how often they can reclaim the money, and how often they just take the loss for better publicity.
But which would you trust more when something goes wrong and your "card number" racks up thousands of stolen purchases:
1) credit card dispute/chargeback process that is mandated by law
2) the promise from your bank that, on their good will, they will fix things
Not only that, but thousands of dollars on your credit card is "loaned" to you by the bank, the money's not out of pocket on you yet.
However, thousands of dollars of stolen debit card transactions means your bank account is thousands of dollars lower immediately, and you have to hope your banks promise to give it back will actually pan out.
Also the fact that credit cards aren't your money you are spending.
If someone steals your credit card, you can say "Not my money! That's your problem" while a debit card is the opposite. Plus banks employ people to fix fraud while you (probably) don't.
Sure a bank will eventually rectify debit fraud but in the mean time, why would they care? It isn't their money.
The rewards system is the wrong incentive here in my eye.
It corrupts everyone and everything down to each penny, on every transaction. Everyone along the line where the money flows is incentivised to get you a) hooked on credit cards and b) on paying by credit cards. The issuer, the merchant, the card institute, the processors in between and even the buyer get's a cut from the exorbitant high fees.
Merchant here. We don't get a cut from "the exorbitant high fees"; we pay 2~3% for the (substantial utility of) being able to reliably take money from you in seconds.
While reviewing statements from our processor ~8 years ago, I noted that some transactions had slightly higher fees than others. Research found that those were... rewards cards. So, the processor may pass some of the cost along to the merchant.
As for the "free money" argument, research [1] suggests that humans tend to spend more when using credit / debit cards than they do when using cash.
I see I need to back that up: some merchants ask you if you would like to pay in your local curreny at POS when you are travelling abroad with a credit card. DCC, dynamic curreny conversion at Visa/Mastercard or similar.
The gains on higher fees are then split between the merchant and the processor.
Edit: Yes I think the fees are exorbitant - hence some lawsuits in the US and some EU countries with regulated, lower interchange fees.
> I see I need to back that up: some merchants ask you if you would like to pay in your local curreny at POS when you are travelling abroad with a credit card.
That's an annoying situation and (is entirely optional). But it's also a relative outlier and is definitely insufficient evidence to claim that the whole system is irreversibly corrupt.
There is no such thing as free...you simply flew thousands of miles paid for by paying an extra 1 or 2 percentage points for everything.
On the other hand, if you did not fly thousands of miles using miles and points, and you still paid the same price as the cardholders, then you helped pay for those who did fly around for free.
> I'd love to know how I'm supposedly being "corrupted."
Yes, corruption might be a too strong word here. The way I see the whole rewards system is that the users actually got paid in order to use their payment method again and again. They pay you. They bribe you, the incentivse you and eventually, it corrupts the way you're spending.
Credit cards are superior to debit cards in every way in the States.
Not only are credit cards more robust at consumer protection, but credit cards have 1% to 5% back deals. When I purchase gasoline, I get 3% back for example. As long as I pay back my credit cards every month, I never pay interest. AND I get the 3% back on gasoline and 2% back on groceries, 1% back on everything else.
There is almost no reason to use debit cards in the US. Use credit but pay it off.
They do exist. However "as a convenience" they allow overdrafts at ridiculously high costs. AFAIK you can't shut this feature off and just have charges declined if there isn't enough money in the account.
That completely 100% depends on your bank. I can and have completely disabled overdraft on my debit card. It will reject transactions if my account is empty. (I actually can't imagine a bank not offering to completely disable this, especially if they charge fees for the same. But I'll accept your word on it.)
Based on both these replies I went to go look at my account. Apparently the way it works is that you can shut off overdraft protection and if you strictly use the card as debit than any overdraft should be rejected. However if the card is run as credit, which it can be since it has a visa logo, then there's no way to force it to always decline the charge if there isn't enough money in the account.
Banks are really hard to deal with for this kind of stuff. I took the time to get overdraft protection shut off, and a few months later I got a letter from the bank notifying me I'd been signed up for free overdraft protection.
I try not to use my debit card for two main reasons: fear of fraud and lack of rewards.
While I believe my credit union would reimburse me if someone were to steal my debit card information and use it to make a bunch of crazy charges, that would also mean that I could literally have no access to cash for some period of time. This isn't a fear with my credit card since fraud never becomes "real" to me - I've never had to pay back fraudulent charges.
Second, I pay a nominal fee ($75/year) for an American Express card that offers higher cash back rates on the purchases that happen to make up the bulk of my expenses (6% back at grocery stores!). Without that $75 fee, cash back would be 3% at grocery stores...still pretty good.
I have never carried a balance on my credit cards - I set the closing dates for all my cards to be the first of the month, and I set an automatic payment for the balance of the card to be processed on the second. Clearly this is something most consumers don't do, but it has worked well for us.
If you're good with money, debit cards are a waste for the most part. You can get credit cards that pay you at least 1-1.5% for every purchase. They're basically paying you to spend your money.
If you're bad with money, steer clear of credit and stick to debit though.
The caveat here is that debit cards that withdraw from your checking account carry the risk of massive overdraft fees if you're really bad with money or just barely scraping by.
Interest on a credit card can be bad but years ago I had a bank pull some really shady stuff to hit me with hundreds in overdraft fees on a handful of minor purchases.
Essentially, I was living just about hand-to-mouth as a young underemployed guy and when payday rolled around, I'd go to deposit my paycheck and then over the next couple of days, I'd check my balance online to see when it cleared. Once the funds showed up as available, I'd head out and put gas in the car, buy groceries, pay rent, maybe grab a 6-pack (again, naive, irresponsible guy) and whatever other little things I'd been holding off on buying until I got paid.
Well, fast forward a week or so and it's almost Christmas. The boss gives everyone a $100 Christmas bonus and I'm thrilled because I never have enough money to go around. I go to the bank, hand the teller the check, and when I get the receipt? Maybe $10 or so balance.
Turns out that when I deposited that paycheck several days ago and waited for it to clear before making several small purchases, the bank messed with the dates and times, essentially pulling the credit, running the debits, incurring many $35 overdraft fees, then applying the deposit after the fact.
The kicker was that the website now showed this new timeline and I didn't have anything printed out to show for it. Not only did they drain my bank account but they took my Christmas bonus to pay the bogus charges.
No amount of speaking with staff did any good. They told me I needed to be better at balancing my checkbook. It was right around then that I learned the real way it's really expensive to be broke. If you don't have credit or some sort of savings to act as a buffer, banks will find all sorts of ways to penalize you and take advantage of you.
Eventually got my shit together. Went back to college to finish my degree, paid with a loan, now all good with a modest salary, only $12k or so of college debt, no car payment, and enough of an emergency fund that I could pay rent and live frugally for a year without employment if I had to.
Sorry for the long rant. Haven't told that story in years and hadn't thought about it in as long. But once I started thinking about it, it all came back to me.
Debit cards are awful. Many purchases that you make with a debit card (gasoline at the pump, for instance) will end up double charging you, with the actual amount, then some sort of hold in addition. Sometimes the bank gets their shit together and clears it out correctly, and sometimes they don't.
Combined with the general volatility in how long it takes funds to clear when deposited (way longer than it should...), and unpredictability on how and when charges will be computed on your debit account, it's just smarter to use the float that credit cards offer, even if there were no rewards.
In addition to the fraud protection and rewards, credit cards also give you some float, which translates into a bit of additional free money. As long as you pay your balance in full each month, there are no additional charges. The result is that I pay for my purchases 20-40 days after the purchase. Interest rates are amazingly low so this doesn't do much, but it's nothing.
Credit cards are great if you can be responsible with them. That's a big "if." For many people they are a disaster.
Of course there are debit cards. How do you think people use ATMs in the United States?
Unless you have psychological issues, it doesn't make sense to use a debit card for purchases though. Credit cards give 2% cash back, an interest-free loan for 30 days, and great consumer protections.
