Who will win the debit vs credit war?

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.

Bank-Initiated Changes

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 Although the monthly debit card fee was revoked due to vocal customer objections, it hasn’t changed the fact that banks are making credit cards more tempting, but why?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.

9 thoughts on “Who will win the debit vs credit war?

  1. Thank you for sharing this great ideas in selecting the best options for rates and terms of different financial institutions. This is very informative that makes me think many times before engaging into any financial institution.

  2. Good suggestion, All of you tips are very informative and will be a great help for newer blogger.Thank you for finding the time to create such an interesting and idea inspiring blog – I will back to visit very soon.

  3. If it says credit on the card then it opperates just like a credit card which will sometimes allow you to go over the limit or amount on the card. How far you can go over the limit or amount on the card depends on the institution that the card is from and the limit amount on the card.

  4. I dont know whether you realize that the big bank lost 29 million accounts to smaller bank and credit unions due to their implimentation of debit card fees. It was a disaster for them that is why they stopped

  5. I thought the whole idea of having a chip on your credit card was for extra security but I don’t see how no identification makes you more secure!

  6. For too long bank have been stick it to their customers. The recent screw up cause them to lose millions of their customer to credit union as a result of them trying to introducedebit card transaction fees. The lesson to be learnt from the public response was first if we act in big enough numbers action will be taken to redress the situation. Simply put the people have spoken by their actions.

  7. Debit card and credit card will be here to stay. Both are taking the place of cash, in a way, that will lead to controlling people’s freedom.

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