Daily Speculations The Web Site of Victor Niederhoffer and Laurel Kenner

 
 

Personal Finance

 

Home

Write to us at: (not clickable).
Please include your full name, and omit attachments.

 

Debit Cards vs. Credit Cards

A Daily Speculations discussion prompted by an Oct. 1, 2005, article in  The Tampa Tribune, forwarded by George Zachar, on how rising gasoline prices are prompting some station owners to end credit card sales. As gasoline prices have climbed, more people are using credit cards to pay. Station owners, who make a flat 6 cents a gallon, say they are losing money because financial institutions charge retailers 3% per gallon on gasoline credit card purchases.

Q. Why don't more people use debit cards?

At least you don't have to be approved for check writing. -- MS

Jeff Sasmor responds:

With both debit and credit cards, many gasoline retailers (those that take the card before pumping gas) pre-auth your card for a set amount before pumping gas. This is done to ensure that you have enough money/credit in your account to cover the bill. Used to be $25-30 now is often $50-75. Guess why...

Usually the preauth is reconciled with your actual purchase - but often not till much later in the day. For credit card holders this may not even be noticed unless you're up against the credit limit. For debit card holders with small chkg account balances this may be troublesome since they may not be able to use all the money in their checking account that same day.

Probably not much of an issue for all the plutocrats on the List, but I read about consumer complaints about this issue.

Also happens in other cases: renting a car. If you rent a car with a credit card they can charge you for extras like late fees, extra gas, dings, etc. If you use a debit card they like to preauth a big amount to cover this. Some car rental companies won't allow debit cards use for this same reason (they also don't like to take checks or cash).

Best card is one linked to a brokerage money market account. You get the float for 30 days then balance lifted from mm account. None of the issues of a debit card. Also removes temptation to make partial payments and pay interest. Been doing so for 15 years.

Malcolm Lui comments:

I use credit cards over debit cards because:

  1. It costs less to me. Sometimes when I use a debit card, I am charged a fee (40 cents or so). With a credit card, I am not.
  2. I receive a cash back rebate on my credit card for purchases.
  3. I like to have all my charges on one card for paperwork simplification.
  4. I like to make one big payment a month and earn a couple bucks on interest on the float.
  5. My credit card has all those "free" warranty and insurance programs. Rarely used, but nice to have if you need to use them.
  6. By law I believe, you have more protection if your credit card is lost than if your debit card is lost, although some debit card issuers also provide lost card protection.