Michael Simpson writes to offer a few sensible “on the other hands” with respect to my thumbs down on Visa and MasterCard debit cards (the kind that suck cash out of your checking account the instant you use them).
“The first point is about float. I certainly understand that time is money. However, 99.9% of the American public would not know what to with the money for the 45 days of float on a credit card. Most people lack planning and discipline. They make the charges and they still spend the money in their bank account. With the money coming out of your bank account, it is gone along with the temptation to spend it on something else.”
“The second point. What are you doing with $18,320 in a checking account anyway? [I had used the example of someone who, through fraud, had had $18,320 sucked out of his checking account.] There are many places where that money would be better placed. I rarely have more than $600 in my checking account at any one time. Money comes in, I pay my bills and make additions to my investments. This minimizes the draw down a thief could make on your account. I also think overdraft isn’t that great idea.”
Well, that was $320 in the checking account and an $18,000 credit line on overdrafts. I agree that using overdraft privileges is a bad idea, because you immediately begin racking up (typically) 18% nondeductible interest. But I’ve always enjoyed having them. Still, you make a second good point.
“The third point. Even if a thief is making little purchases, an individual should still be diligent in looking at charges. I could certainly see this as a problem when you are married and share a checking account. That is why my wife and I have separate accounts.”
Ah. But do you see any contradiction between your first point, in which you said that most people lack discipline, and this one, where you say that all it takes to spot unauthorized charges is a little diligence? And what of married couples who do share checking accounts — the majority I should think?
“The last point in favor of the cards. My wife and I went to Europe and were able to get up to $1000 a day in cash advances at Western Union on the ‘Visa’ card. There were no charges because Visa was picking up the tab. No fee charges whatsoever! If you use the ATMs over there, you are limited to about $300 a day and are charged fees. We could have used a credit card, but we were over there for three months. We would not had an easy means of getting the credit card bills paid. We paid the credit cards off before we left and had the mortgage and car payments paid by my parents. The utilities were also pre paid. My company was paying my paychecks directly into my account here at home. The card gave us significantly better access to our cash.”
Well, that’s a good point, too. (See below.) You have come close to convincing me . . . but nothing would make me give up my frequent flier miles. The credit cards I use all give me float, a little more protection against fraud, and frequent flier miles.
“I agree that there are risks to the debit card,” writes Swastik Lahiri, “but I have found one useful feature that makes the debit card worthwhile over the traditional ATM card. I love to travel, and when I graduated from college I went backpacking thru Europe with only a few articles of clothing, a Eurail Pass, some traveler’s checks, a VISA card, an ATM card, and my Let’s Go Europe book. I was able to use my ATM card in London and Holland, so I thought I would start using my traveler’s checks so that I wouldn’t have to worry about carrying them around. I figured I could use my ATM anywhere. By the time I got to Spain, I had exhausted my checks and went to use my ATM. To my surprise I could not find a single ATM machine that accepted my card. I had to use VISA to get a cash advance, but I only took out a little bit thinking that once I got back to France I would be able to use my ATM again.
“Well, I couldn’t use my ATM in France either, not even in Paris! To make matters worse I ran out of money (except for my checking account which the ATM accessed) and I missed the last train-hovercraft of the day back to London. I ended up sleeping at the train platform in Paris waiting for the next train scheduled to depart 12 hours later. Except for being woken up and told to move every couple of hours by the police it wasn’t too bad.
“Once I got back to London everything was fine, I was able to use my ATM and I got back to the US without any other hassles. But if my ATM back then had been a VISA debit card (as it is now), I could have used it to get cash advances in Spain and France where my ATM didn’t work. Furthermore I wouldn’t have been charged the cash advance fees (2%) and the interest (18%) which starts accruing immediately on cash advances.
“With my new ATM (VISA debit card) I really don’t need to carry traveler’s checks anymore. I went to India this Christmas with only my VISA card and my VISA debit card. I didn’t have any problems getting money whenever I needed. The ATM machines wouldn’t take the card but the banks were happy to give me a cash advance against my debit card. I still use my VISA card to get the 30+ days of free money plus I get miles on American Airlines so that I can continue to travel often, but I have really come to love my VISA debit card (aka VISA check card).”
And love conquers all.
Finally, this from Robert D: “I am confused about your April 1 column panning debit cards. I understand your points; but a while ago you seemed to be positively jubilant about Citizen’s Trust’s E*Fund Money Market account with its high interest rate, free checking and . . . Debit card (which rebates 1% of purchases). I have been amazed at how aggressive banks have become in showering everyone (including recent bankruptees — which seems most suspicious and ill advised) with credit cards. I am trying to winnow down my collection of credit cards to one or two and I had planned on having the E*Fund card be part of the set. I mean, if they are going to pay me 1% of what I charge and 6% on everything I don’t spend, that has got to be a good deal, right??”
The 1% you speak of isn’t rebated direct to you. The E*Fund is a money market fund that allows you to write checks against it — and pays a higher rate of interest than most money market funds because it does offer the debit card. The more its participants use it, the better the yield the fund is able to pay all its shareholders. But no one says you have to use it to get the same yield everyone else does. You could cut it into credit-card linguini the moment it arrives. So the fund is good, but as I think I mentioned in that column, I would continue to use my frequent-flier-mileage cards.
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