When it comes to your finances, a debit card can be a great tool. The ability to pay for purchases in a variety of stores means less hassle, and a debit card can give you peace of mind. Banks will usually provide you with a number of benefits if you use the card. You can earn rewards from online shopping and cash back on certain purchases. A debit card can also help you to keep track of your finances.
What are the Disadvantages of a Debit Card?
While the advantages of using a debit card outweigh its drawbacks, there are a few drawbacks. Most credit cards charge a fee to access your money and some banks and credit unions even charge fees for card maintenance. Insufficient funds fees are another disadvantage, but they are less common than if you write a check that bounces. While you can’t spend more than you have in your checking account, using a debit card can pose complications when making a large purchase.
The most significant disadvantage of a debit card is the fact that it is tied to your bank account, so any transactions can only be made with the balance you have on the card. This makes it easier for someone to commit fraud with your card if you’re not careful. Once you’ve reached your free withdrawal limit, you can no longer make cash withdrawals at ATMs without incurring charges. In addition, the cost of ATM withdrawals is higher than the cost of a credit card.
Difference Between Debit Card and Credit Card
The primary difference between a debit card and a credit-card is payment method. A debit card immediately draws funds from the user’s checking account, while a credit card deducts the purchase amount from a line of credit and charges it later. The former builds a history of responsible borrowing while the latter does not. Nevertheless, both types are useful in different situations. Let’s look at a few examples of each type of credit card and compare how they work.
A credit-card-like device with an EMV chip is more secure than a debit-card. A credit-card has more protection against fraud, and debit cards generally have fewer fees. While a credit-card offers rewards and helps you build a credit history, a debit card can give you peace of mind. A debit card also has fewer rewards, but a credit card can provide better security and management of your spending.
What Kind of Fees Do Debit Cards Have
Debit cards have a variety of fees. These fees depend on the merchant, category of the business, and whether or not a PIN is used. Among other things, the cost of the interchange is dependent on the type of card and the number of transactions made with it. The average interchange fee in 2018 was 0.57%, which equals $0.23 per transaction. In addition, there are processor markup fees, which range from 0.75% to 0.9% and may be as high as $0.22 per transaction. The processing company may also charge an annual fee.
The fees that a merchant can charge are not simple to understand. The costs depend on the merchant’s category, the method of processing, the size of the issuing bank, and other factors. In an example, Square charges a total fee of $20, which is 2.6% plus $0.10 for every transaction. In the example, the merchant would end up paying $3.22. These fees are just a small fraction of the total cost of using a debit card at a business.