Wednesday, August 19, 2009

Credit or Debit?

I have never used an ATM, ever. I'm old-fashioned like that. When I need cash, I go to the bank and fill out a slip and give it to the teller. It's not as inconvenient as it sounds because I usually have checks to deposit anyway. I've never used a debit card either... until today.

My formerly free checking account at Chase recently switched over to their regular Chase Checking account. In order to avoid a monthly service fee, I need to either have direct deposit or make five debit card purchases a month. Since I probably won't be having direct deposit anytime soon, I had to go find my debit card and start using it.

I was a little angry about this at first. I use my credit card for nearly everything, and having to use my debit card five times a month was going to be a hassle. Not only would I miss out on any cash back reward that I would get if I used my credit card, but I would also have to make sure that my checking account has enough money in order to prevent overdraft charges.

But then I realized I'm not the only one who's losing out because of this rule. JP Morgan Chase, N.A., in its infinite wisdom, is actually losing out on this too. You see, when I use my Chase credit card, Chase typically charges the merchant (e.g., Wal-Mart) around $0.25 + 2% of the purchase price. (The actual fee schedule is extremely complex and opaque, with different fees depending on which card is used, where it is used, how it is used, and so on.) This is known as the interchange fee, and is how, besides charging those foolish enough to carry a monthly balance on their card usurious interest rates, credit card companies make money. Most debit cards, however, charge a fixed fee per transaction. The details are a little hazy (as always), but if you use your PIN with your debit card, the charge will be around $0.25 to $0.50 per transaction. If it's $0.25, then Chase loses money on every transaction I make with my debit card that I would have made with my credit card. If it's $0.50, they lose money whenever I spend more than $12.50 on a purchase. At best, Chase gets a few extra cents a month in additional revenue, at the expense of an unhappy customer ready to jump ship. Not a very smart move on their part. Then again, this is the same bank that's sitting on tens of billions of dollars of option ARMs that's going to make subprime look tame....

Just remember: Banks are evil. They're even worse than cable companies.

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