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Personal Finance - Credit Cards
Written by Omie Ismail   
Wednesday, 27 January 2010 10:59
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Debit Cards: Wolves in Sheep's Clothing
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When it comes to exercising discipline over your spending habits, debit cards are often considered a more financially responsible choice over their credit card cousins.  SDebit Cards Overdraft Feesince consumers access their own money and there is only the occasional small fee on certain transactions, a visa or mastercard debit card is touted as the less costly option. But for many people, that might not work out to be the case. This might come as a surprise, but bank debit cards can end up being a very expensive option - in many cases, more expensive than the vilified credit card.  Read on and find why the debit card is the bank’s new weapon of choice for gouging consumers.

Banks are pushing debit card usage on every street corner and the marketing campaigns are going full tilt. Bank of America’s Keep the Change rounds up transactions, gives matching amount and deposits the funds into a savings account.  Every five minutes, Chase holds a lottery and picks up the tab for one lucky customer's transaction - up to $200. How generous of them.  But the real motivation for their largess is purely economical and consumers are often the losers. So don't ever mistake their generosity for charity. While their credit cards are just about to get a dose of Credit Card Reform, debit cards are entirely exempt from the legislation and your friendly banker is planning to take full advantage of the situation. What they love is debit card fees.


Overdraft Fees:

Banks love debit cards for one very profitable reason: overdraft fees.  Financial institutions learned long ago that it was far more profitable to allow a transaction to go through than to decline a customer’s card. When banks decline a transaction, they lose the ability to charge overdraft and convenience fees - fees that are completely unregulated.  If a bank wants to charge you $1 million for a $2 overdraft, they have the legal right to do so.  Typical fees are $25 to $40 for each overdraft and that can add up to hundreds of dollars in a single day.


Overdrafting 10 Times in a Day?

Banks love overdrafts because, once you go over the limit with one transaction, they get to ding you overdraft fees on every subsequent transaction.  Head to Starbucks for a latte, and that might just cost you $40. If the $9 scheduled Netflix monthly fee happens to hit your account on the same day the cup of java took you over the limit, that will cost you another $40. Pick up a few groceries and fill up the tank on the way home and you can very easily end up contributing $200 in late fees to your favorite bank's coffers. It's the sweetest deal for a bank - for them it's like charging their clients a 24,000% annualized rate.  If you're forced into a situation where you have to go overdraw, consider a visit to your local loan shark before you even think of touching that debit card. Believe it or not, it would actually be cheaper.

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