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View Diary: Good thing banks don't want customers, because they're losing them (183 comments)

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  •  Debit Cards vs Credit Cards (1+ / 0-)
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    Kimball Cross

    The picture at the top of the diary shows two cut-up cards: the one at the top is a credit card and the one at the bottom is a debit card.  These are two very different animals, although they can be used in similar ways.

    I don't agree that cutting both of them up is the way to make a protest against the banks.

    A debit card requires that you have funds on deposit at the bank.  When you use the card, the amount you spend is immediately subtracted (debited from) your account.

    Removing the funds that are the basis for using a debit card hurts the bank because it no longer has your money on its books.

    A credit card is just a convenient mechanism to implement a promise to pay.  When you use a credit card, the bank advances (gives) the money to the merchant, thus lowering the amount of money that they bank has.

    At the end of the month, the bank sends you a bill for the amount you owe.  Since February 2010, the bank will not charge you any interest if you promptly pay the balance of the credit card account in full.

    If you have a credit card account with no annual fee (admittedly, harder to find these days) and you keep your use of it to an amount that you can pay off during the "grace period" (typically, 21 days from the billing date), you'll be costing the bank the amount required to service your account less any fees the bank receives from the merchants you patronized.

    Unless the merchants you patronize offer a discount for cash (equivalent to what they save by not having to pay the bank its processing fee), it wouldn't make any difference to me whether the cost of servicing the credit card account was borne by the bank or the merchants.

    Either way, I would argue that smart use of a credit card is both convenient for the user (you don't have to carry cash or find someone who will accept a personal check) and is not beneficial to the bank.  

    But be aware of how credit card grace periods really work.

    We must drive the special interests out of politics.… There can be no effective control of corporations while their political activity remains. To put an end to it will neither be a short not an easy task, but it can be done. -- Teddy Roosevelt

    by NoMoJoe on Mon Nov 21, 2011 at 12:31:07 PM PST

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