Recent fees implemented by banks in relation to their debit cards have made credit cards look more appealing than they have in years. This is due in a large part because the same banks that have attached new fees to their debit cards are offering credit cards with better rewards and lower fees, but how will this affect banking customers?
We all need to maximize our money, from getting the best savings rates through to ensuring that we use our credit cards responsibly. Financial pressure on consumers has seen debit cards become the preferred method of payment in recent years. With debit, there has always been money to back up every swipe of the card.
Late last year, institutions like Bank of America announced that their debit cards rewards program would be discontinued and monthly debit card fees would be imposed. Although the monthly debit card fee was revoked due to vocal customer objections, it hasn’t changed the fact that banks are making credit cards more tempting, but why?
It all comes down to money. The fact is that banks receive less revenue when consumers use debit cards. Recent federal legislation has limited the so-called swipe fees that banks can charge when you use your debit card. What this means for banks is a potential loss of billions of dollars annually. This is the main reason that the Bank of America and others wanted to impose a monthly debit card usage fee. Credit card revenues, by comparison, have remained unchanged; therefore banks make more when you choose credit over debit.
The Real Costs
You also have to charge large amounts in order to get the best rewards on credit cards and all that extra interest is good for banks. Potential late-fees and other penalties are also big business, but none of these things are good for your wallet. Even if you had chosen your bank because it offered the best savings rates, you’re not doing yourself a favor by getting swept away by all those fees.
This isn’t to say that there is anything wrong with credit cards. As long as you set aside enough money to completely pay off your credit card balance each month, you don’t accumulate interest and the card serves virtually the same purpose as a debit card. There is also fraud protection on credit cards that debit cards simply don’t have.
As long as you use credit cards wisely, there’s no reason that you cannot benefit from the banks’ renewed love affair with credit, but if you find that your bank is charging more fees than you are comfortable with, it may be time to hit the road.
Look into another financial institution that can better serve your needs if you feel taken advantage of. Credit unions and regional banks may be good options. Consider what works best for you and take advantage of financial products that come with the best terms and rates.