A debit card, which looks exactly like a credit card but draws funds from a linked bank account to pay for purchases, makes life convenient. Rather than carrying around a wad of cash or having to fill out personal checks to pay for stuff, consumers can simply slide their debit cards through a reader and enter their personal identification numbers. However, this convenience doesn't come for free. Banks make money in a variety of ways through clients' debit card usage.
Traditionally, people using debit cards to make purchases swipe their cards and then the reader asks for a personal identification number (PIN), which must be entered for the transaction to be processed. Increasingly, banks are charging consumers a point-of-sale fee. While this fee can be as small as 25 cents per swipe, when millions and millions of people are using debit cards like this on a daily basis, the profits for banks can quickly add up.
Debit cards offer consumers the option of purchasing items by simply swiping and signing, rather than inputting a PIN. Often, fast food restaurants and gas stations require that consumers use their debit cards in this way for the sake of speediness or when consumers hand over their cards to be swiped rather than swiping their cards for themselves. When a purchase is made with the signature method, banks charge the merchants a fee.
Some banks charge maintenance fees for debit cards. Others charge what they call "rental" fees for renting you the piece of plastic you carry in your wallet. Regardless, these fees are typically charged on an annual basis. These can be as little as a few dollars. Again, an individual consumer may not notice these small fees, but when you consider how many people banks are collecting these fees from on a daily basis, it becomes clear how profitable an enterprise this is for banks.
Debit cards can be dangerous precisely because they are so convenient. When people pay by check, they can enter the purchases into their checkbooks to know how much they have spent and how much is left in their accounts. By contrast, when they pay with a debit card, they often forget to enter information about purchases into their checkbooks, so they lose track of their spending. When they use their debit cards for purchases they don't have the money for, overdraft fees can quickly add up. And these are hefty, often as much as $35 per transaction.
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