January 17, 2012

The Almost Death of the Debit Card

Credit: worradmu
A couple of months ago, Bank of America’s CEO Brian Moynihan announced his company’s new $5 fee on debit cards by saying that his company had “the right to make a profit.” He could not have anticipated the response he and Bank of America would receive. They were almost immediately and severely flogged in the court of public opinion and many of their customers bolted for the door. The public outrage and backlash became so severe that Bank of America quickly decided to nix their plans for debit card fees altogether. SunTrust, Regions, Wells Fargo, and Chase had all either already started charging debit card fees or were testing them, and now they, too, have cancelled those plans.

The ability to still use your debit card for free appears to be safe for now, but perhaps this most recent debit card fee “scare” by the major banks is just enough reason for me to try to convince you that credit cards are the way to go; if you have self-control. Here goes…

     • Debit card purchases are an immediate withdrawal of funds. Using a credit card (if you pay it off monthly) amounts to an interest free 30-day loan; which adds up over time.
     • Most banks offer fraud protection for debit and credit card transactions, but federal law caps debit users’ obligation at $500 and credit users’ obligation at only $50. The bank’s policies could change any time.
     • Recovering money is much more difficult on a debit transaction than a credit transaction. If your card is stolen and the thief uses your card, if you have already paid for merchandise that is never delivered or delivered damaged, or if an amount is in dispute, the money has already disappeared from your account if you used a debit card. Who knows what lengths you will have to go through to get that money back! If you had used your credit card, the money is still in your account and you simply refuse to pay until the issue is resolved.
     • Debit cards do absolutely nothing to your credit score. If you have self-control, using several credit cards and paying them off consistently over several years can actually help build your credit score.
     • Debit card purchases are a plastic alternative to cash. Although there are a few debit card reward programs, typically, credit cards offer more variety and greater rewards (think sky miles, lower gas prices, hotel points, and cash-back). You might as well get something in return for spending your hard-earned money!

Debit cards are good and convenient. They allow you to make purchases and get cash from an ATM.

Credit cards are better. They are also convenient, they let you hold your money longer, they offer greater fraud protection, they let you build your credit, and they offer better rewards.

All I have written is null and void if you spend more than you have due to credit card interest rates. However, if you are responsible and don’t max out your credit cards and pay them off every month, then all of the pros I have given for using your credit cards for purchases are valid. As long as using your debit card remains free, then by all means use it; but only at the ATM.



  1. Thanks, Tom! I love my credit card that allows me to accumulate world points (which can be returned for ca$h). Paying off the credit card monthly is excellent advice! Keep up the good work!

  2. I never thought of it that way before Tom! Thank you for another great piece of advice.
    Rachel Kline

  3. Tom,
    I'm completely in agreement with you on this one bud. Rather than using a debit card, I was using a credit card for quite some time for all of my purchases. The only down-fall, I was using a credit card with no rewards.
    I realized that was dumb and switched over to a cashback rewards credit card. I have done absolutely nothing different, and in the past 4 months I have racked up over $200. For doing NOTHING DIFFERENT!
    Great advise sir and I fully back it (just as long as you pay it off every month!).

  4. Tom, this is great! Thanks for the boost of confidence here.
    We decided (about a year ago) to start paying our typical monthly expenses with a credit card. Once a month I pay all of the bills with a credit card. The next day I pay off the credit card balance using our debit card. It gets me a TON of points (which means free stuff : ) and builds our credit at the same time. I don't think we're quite ready to use the credit card for everything, though (we don't trust ourselves yet, haha). Maybe we'll get to it eventually!