I hate debit cards. With a passion. Your money is in your bank account for less time, thus earning less interest. Also, they don’t come with the same level of consumer protection and fraud liability as the good old-fashioned credit card. To boot, they are a huge money-making scheme for the banks. Their popularity has been artificially inflated with clever marketing campaigns that tout their one supposed upside: You can’t spend more than you have in your account.
Except it’s bullshit. If you’re a smart person, you keep as little money in your checking account as possible, since it bears little or no interest. Unfortunately, with debit cards, it’s really easy to lost track of how much you should keep in your account. So you drain your account - but instead of your card being denied, the bank “helpfully” transfers money from your savings account, under the guise of “overdraft protection”. And they charge your a huge fee - like $20. So your morning latte just cost you $23.57! Great!
Now, of course, they have to notify you of your overdraft. But what notification scheme do they choose? Oh, right, the United States Postal Service. They send you a letter, telling you that you’ve just overdrawn your account, and that they’ve taken their fee, and you should really transfer some more money into your account. But, being the postal service, the letter doesn’t get there for three days; and, as a normal American, you buy a lot more stuff during that three days of ignorance.
You buy lunch: $7. Overdraft. Another $20 fee.
You pop in for a beer at the pub: $4.50. Overdraft. Another $20 fee.
You swing by the store for a gallon of milk: $2.69. Overdraft. Another $20 fee.
And so on - for three more days!
The end result? A little screw-up turns into hundreds of dollars in bank fees and a dozen letters in your mailbox. Oh, did I mention they won’t let you opt-out of this service? Hot damn those banks sure are helpful!
Hopefully, it’s about to change. Buried near the end of this NYT article on impending changes to credit card regulation is this tiny little gem:
The proposal also seeks to regulate overdraft protection, banning companies from assessing a fee unless the customer chooses not to opt out of that service.
One can only hope.