Post date: Oct 29, 2010 9:51:38 PM
Nearly everyone uses a debit card these days, and why not?
They are easy to use and convenient. Not to mention, using
your debit card is much more responsible than using a credit
card.
However, there are some serious disadvantages to using adebit card, of which you should be aware. You could discoverhow using your personal checks can be a wise choice.You might assume that banks do not appreciate overdrafts andwould consider you a bad customer if you continued to useyour debit card with insufficient funds in your checkingaccount. But you'd be wrong.Financial institutions used to make most of their money byinvesting the funds you deposited. Today, banks make a lotof their money by charging fees to people like you forspecific services. One of the biggest money makers isoverdraft protection.The Government Accountability Office has reported that
revenue financial institution gained from checking and
savings accounts increased around 48% from 2000 to 2007.
Financial industry analysts say that money made by the banks
from overdraft fees nearly doubled from 2000 to 2009. The
total was more than $37 billion! More than half of that came
from charges applied to debit and ATM transactions.
Consider this...let's say you buy a gallon of milk at the
grocery store for $2.50 and use your debit card. You were
unaware that your checking account balanced had dropped to
zero, and you overdraft the account. The bank ends up
charging you a $30 fee because you still have overdraft
protection on debit card purchases.
Think about it. That's almost the same as being charged an
interest rate of 1,000% - way worse than the typical Visa or
MasterCard! That's because the fee you're charged for
overdrafting is the same with any amount you spend.
Lucky for us, there are new requirements making it the law
for banks to ask customers if they'd like to choose the
option of declining overdraft protection. If you refuse the
service, when you use your debit card or go to an ATM but
don't have enough money in your checking account - your card
will simply be denied.
For most people, when their card does not go through they
usually have another option such as a credit card, cash or
personal checks.
One possible issue with the new rules regarding overdraft
protection is that because banks will most likely be losing
millions of dollars, they will have to find somewhere to
make up the loss. That will inevitably lead to more fees and
higher charges for those fees at your bank. Experts in the
financial industry think it's quite likely that banks will
completely get rid of free checking.
Most people overdraft with a debit card because they are
completely unaware of their checking account balance. Using
checks could be the solution to this problem.
It's true that you can still be charged NSF fees for
bouncing personal checks. But it's also a fact that people
who order personal checks and use them with a check
transaction register are more responsible with their
personal finances.
Keeping a close eye on your finances is very important. A
recent study by the FDIC discovered only 13% of checking
customers pay more than 90% of all overdraft fees. That 13
percent includes people classified as "financially
disorganized."
So start taking control of your finances. Opt out of
overdraft protection if you think it could help. If your
debit card is denied, you can always use another option like
personal checks, a credit card, or even cash.
About the Author:
Kasey Steinbrinck has written in the television radio and
newspaper industries. He now creates web content for Check
Advantage, which offers personal checks and business checks
directly to consumers. Visit