Debit card usage equals huge profits for banking institutions…
Have you ever wondered why you’re encouraged to you to use your debit card over your credit card? Research by the Mercator Advisory Group shows that consumers who use debit cards are more likely to overdraw their accounts and pay non-sufficient fund fees. Consumers who use debit cards more than 20 times in a year pay an average of $233 in overdraft fees, compared with $40 for those who don’t use a debit card at all.
Prior to 2003, most ATM or debit card purchase transactions that exceeded a customer’s balance were declined unless the account was linked to a credit card or savings account to cover the overdraft. But since that time, 80% of banks have instituted overdraft software that allows banks to pay overdraft without alerting the consumer that they are exceeding their account balance and that a fee will be assessed if they proceed. When translated into an annual percentage rate, overdraft fees on debit cards can exceed 1,000 percent.
The Office of the Center for Responsible Lending in Washinton, D.C. estimates that consumers pay $17.5 billion in overdraft fees anually – with almost half coming from debit card transactions. “You may use a debit card to avoid paying high interest on credit-card balances, but when you’re hit with what amounts to high-cost overdraft loans, your debit card can quickly become the most expensive card on the market,” says Director Eric Halperin.
To protect yourself from overdraft fees, keep an accurate record of all debit transactions in a check register and compare to the account balance posted online. Another safeguard is to sign up for overdraft protection that is linked to your savings account.
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