this post was submitted on 23 Oct 2023
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Get an account at a bank that charges interest for negative balances instead of fees. It's the European banking model. Plenty of smaller US banks do this. Also, STOP BUYING STUFF WITH A DEBIT CARD!!!
There are also plenty of US banks that just don't charge overdraft fees anymore.
And many that transfer from your savings automatically.
My credit union simply declines debit card transactions if they're over the available balance. I'm kind of stunned to learn this apparently isn't common, to the point people feel they need to outright avoid using debit cards?
For other transactions that may overdraw (automatic withdrawals, ACH, etc) we have the option to pull from savings. If the overdraft is under $10 or so, they don't charge anything. If they do charge the $35 dollar overdraft fee, you can call and they'll waive it when you deposit the overdrafted amount (within a reasonable amount of time).
I've been with my credit union since mom helped open my account when I was a teenager. I'm so frequently flabbergasted to hear about some of the things people put up with from their banks.
Isnt charging interest the same as a fee though? Also, why stop buying with a debit card? Are you advising credit cards are a better choice?
No because 12%(?) interest on overdrawing your account by $1 is a lot less than a $35 flat fee. If you overdraw your account you’re basically asking for a loan for the negative balance. It makes more sense to charge like you would for a loan.
I had a bank with “overdraft protection” before. It was basically a $500 line of credit that was activated if you overdrew. The interest rate was terrible, though.
To me that’s reasonable. If the interest was 20%. That’s better than the fee. The fee if calculated at an interest rate is robbery.
Credit cards are definitely better than debit cards if you can manage your spending well. The biggest reason for me is that credit cards offer better fraud protection. Say your debit card gets stolen, they can clean out your entire bank account and suddenly you have no money. It will take time for the bank to reverse these charges, meanwhile you have no way to buy necessities. With credit it's not your money and the credit card companies are insured and deal with this stuff daily. You also still have money in your bank account for necessities.
You absolutely have to be careful with credit though, especially if you aren't good at budgeting. It's not free money and will charge interest if not paid off each month, but if you can use it responsibly you can take advantage of the perks, like cash back, points and whatever else they offer.
What I personally do is only use credit cards, I have certain ones that offer the best perks for certain purchases and pay them off in full every month at minimum. You can set them up to be very similar to a debit card and monitor your spending so you don't build up too much debt. It boils down to whether or not you can trust yourself to be vigilant in sticking to a budget.
This is the way. Get a couple good rewards cards, but treat them like a debit card. Don't spend money you don't have unless it's an emergency, and always pay off your balance before the billing cycle ends. You'll pay no interest and earn points for travel, statement credits, and more.
Start with a flat rewards card like the Wells Fargo Active Cash card. No annual fee and 2% back on all purchases, and if you pay your mobile phone bill with it, you get $600 towards replacing a broken or stole phone.
Once you've built credit, check out cards like Chase Sapphire Reserved which gives 3% on travel and restaurants/bars, and points are 1.5x when you book travel through Chase, so a $300 flight only costs $200 worth of points. The Amex Blue Cash Preferred gives 6% at supermarkets and on streaming services, and 3% at gas stations, and they often do promos with up to 10% cash back. As long as you pay your cards off every month and don't get hit with interest, it's free money just for buying the same things you always do.
What I do to make sure I’m staying in budget is pay the cards off every week. Gives time for transactions to post and ensures the card never holds a higher balance than I can pay off before interest is added.
I’ve gotten automatic credit line increases over the years, so the amount I can charge is roughly 4x the max I ever have in the bank, but the weekly payoff strategy makes it basically the same as using debit, except with cash back perks.
Also interested
Feel like Im missing something, here.
If I try to pay with my debit card and there's not enough in my account to cover the transaction, it gets declined.
Moreover, most times I've ever been overdrawn have not been due to a debit card, but a check or bank withdrawal or whatever for a bill or something.
When the payment is done via a network such as VISA or Mastercard (which in some countries such as the UK which do not have their own card payment networks are the only networks for both Credit and Debit cards), the payment might be made without checking if the account linked to the card has enough to cover it (even for cardholder present payments, i.e. you're paying yourself at the machine with the physical card, not using the card numbers), and if you have not arranged with the bank to have overdrafts authorized in that account there will be an "unarranged overdraft" and some banks charge you a lot for it, in some case even do it per day the account is in overdraft.
In countries with their own card payment networks, the network only does debit payments and as part of the protocol the system first checks the account to see if it can cover that payment and only then accepts (or denies) the payment.
The issue is theft. In the US a debit card transaction dispute takes months to resolve and you may not get all your money back. So when your card number is stolen and used, you're out a lot of money for months and some you never get back. CC disputes are reversed in the card holder's favor immediately.
If you can't use a cc responsibly, use cash. Every card eventually gets stolen if used frequently. There are too many breaches.
What's the issue with a debit card again? Are you saying that we should be using credit cards, or physical currency?
If your card number is stolen the bank will take months if at all reversing the charges. It's also easy to distinguish a debit from a credit card. When the thief figures out it's a debit card, they drain every possible penny right away. They can use it for cash back so the payout is faster and easier. Meanwhile your account is overdrafting and you can't pay your bills for months.
Compare that to a stolen credit card.... You just tell the bank which charges are fraud and they reverse them all immediately without question.
Use credit cards or cash. Leave the debit card at home locked away for the rare atm run or just destroy it.
Are there any systems I (pun unintended) buy into when using a credit card over a debit card?
I'm still agreeing to a bank, for instance, when credit unions are an alternative.
Apologies for the naivete. Seems like my education failed me here.
Cash back is with CC only. Other than the immediate financial debit, they're the same in almost every way from the standpoint of a transaction. The use contract favors the bank with a debit card whereas it favors the card holder with a credit card.
My main credit card is through a credit union. So are most of my accounts. I avoid traditional banks too.
Debit cards in the UK generally don't let you go overdrawn.
Like if I try to buy something and don't have enough in my account I just get told 'you can't buy this' and have to go transfer some more money to my account.
I pay a £5 monthly fee, but that gets me travel insurance, breakdown cover, mobile phone cover and a bunch of other benefits that I haven't had to use yet.
I could opt out of that £5 fee and not pay anything at all for my banking. I find all the fees you end up with in the US a little bit insane.
Not really: I once went overdrawn on a Debit card in the UK (because the country doesn't really have its own payments network and uses others such as VISA, which was the one for my card) even though I had verbally agreed with them it would never happen and any such payments would just bounce (as I was used to the banking cards in my home country of Portugal which use a local banking network were no unarranged overdrafts can happen, as it's designed from the ground up as a debit-only network for in person payments), it was an in person payment and I had more than enough money in my savings account.
They charged me £20 for it (if I remember it correctly). I was pissed off enough that I closed my accounts with them and moved banks.
Mind you, this was over 15 years ago.
Considering the amounts that passed through my accounts (and often stayed they for a good while) after that while I lived in the UK, they lost a ton of money by scamming those £20 from me.
That last sentence has been the only thing going through my head as I read this post/comments.
I haven't had an overdraft in like... Idk over a decade. As much as the banks suck for doing this, it's really easily avoidable with a CC.
Then again I know some people who cannot use CCs cuz they can't control their spending and will literally impulse buy themselves into debt.
But it’s not that easy. I also have not had an overdraft fee in decades, because I am financially stable and can afford it. However I also remember more desperate times when I paid so much in fees and still don’t think there was a better approach.
Credit unions generally have lower fees but they still have some, and many require a good credit score to join. Works for me, now.
Some banks/credit unions now let you chose to have a transaction you couldn’t afford rejected rather than charge a fee. It’s a crime that this wasn’t always the case
Some banks now process checks in the order received, rather than an order which maximizes the number of fees they can charge, should some of them overdraft. It is also a crime that this wasn’t always the case
It comes down to being avoidable if you have money and self control.
For some in cases where money is tight, a random charge can wreck a budget and have major knock-on effects.
In other cases, people may not have the knowledge or self-control to operate in a system where you can spend money you don't have. Worse, the current banking system doesn't really let you know if there is a problem until it already exists because solving problems before they happen doesn't make money.
Considering just how little most people have in reserves (in my country the average is something like €500, which is fking ridicukous IMHO), all it might take is, say, your electricity company to make a mistake on a direct debit and all of a sudden there might be hundreds of euros there less than what you expected.
(Sure, they'll refund you the excess money they took ... eventually ... but they won't refund you for any problems resulting from their "mistake", so you're SOLO on that).
Worse, in my own experience in the only time I had one of those (I had moved to another country, was verbally confirmed by the bank when I openned my account that such payments would bounce and yet one didn't bounce and I got charged "unarranged overdraft" fees), even if you have another account with the banks (such as a savings account) with about 1000x what was needed to cover that amount, they won't use any of that money and instead treat it as an overdraft and charge you for it a lot if unarranged.
PS: I ditched that bank within a week, so the £20 or whatever they made from that little stunt was a lot less than they lost, because a lot of money went through my bank accounts (some staying there for long periods until invested) in the years after that.
Debit card > credit card. You want to know how much money you have when you spend it and not realize later, that you didn't have the money so now you are indebted to the CC company.
debit cards usually lack the buyer protection that credit cards offer. just treat your credit cards like an old-school charge card that got paid off every month
yeah cc are the best but you need to treat them like its a debit card. I actualy have to call regularly to get my maximums lowered. They love to set them real high but I don't want them larger than what I earn in a month which is still to high given its not like I could spend that whole amount given the stuff that you have to pay every month not on cc and I have more than one. You definately cannot charge till you get rejected from hitting the limit.
While I agree with you on the second point, I don't believe debit cards are better than credit cards for several reasons. The main one is that credit cards offer better fraud protection. Say your debit card gets stolen, they can clean out your entire bank account and suddenly you have no money. It will take time for the bank to reverse these charges, meanwhile you have no way to buy necessities. With credit it's not your money and the credit card companies are insured and deal with this stuff daily. You also still have money in your bank account.
You absolutely have to be careful with credit though, especially if you aren't good at budgeting. It's not free money, but if you can use it responsibly you can take advantage of the credit card perks, like cash back.
Debit cards can be frozen and charges can be reversed. I've done this before. You're just advertising for credit card companies at this point. I don't wanna have to pay interest on my purchases, thanks.
I'm agreeing with you
I've had my debit card compromised and had absolutely no issues getting the charges reversed
Also as an aside, because my credit union debit card is a MasterCard, I get all of the "credit card benefits" such as the extended warranty and fraud protection. Regardless of the fact it's associated with a debit account
Credit unions all the way
I've never paid interest on a credit card, and if you pay off the balance each month you won't either.
So... what's the point? If you're just gonna pay it off as if it were a debit card? It's just debit with extra steps. Doing that will even harm your credit rating.