Will credit cards soon be back in vogue?
April 27, 2011
If you're one of millions of Americans who packed away your credit card in favor of spending with a debit card, this year might be when you dust off the old plastic and put it back into circulation.
Although spending with debit cards in recent years has outpaced the use of credit card spending, banks are contemplating a number of new restrictions on debit cards that may put credit cards back in favor.
Debit card changes putting customers off
The biggest change card users are seeing is the decision by many banks to cut rewards programs for customers who make purchases with debit cards. JPMorgan Chase and SunTrust recently eliminated their debit card rewards programs, and many banks are thinking about other restrictions, including:
- An annual fee on debit cards
- A limit on how large of a purchase you can make with a debit card
- Higher ATM charges when withdrawing cash with a debit card
Rewards programs allow debit card users to accumulate points by buying things with their debit cards. They can trade the points for gift cards, electronics or plane tickets, working much like rewards programs for the best credit cards. But the rewards you may have accumulated with your debit card are likely to disappear if the rewards program is cut.
Why are debit cards becoming less appealing?
Banks began enthusiastically marketing debit cards 10 years ago as a means of keeping their customers from switching banks. Customers love them, particularly those who were trying to cut down their credit card debt or were tired to paying interest on their credit card balances.
But new rules expected this summer are expected to cap how much banks can charge merchants when you use your debit card. The average swipe fee of about 44 cents per transaction could be capped at 12 cents, and banks are looking for ways to recoup the $10 billion a year they are expected to lose. Some of those revenue-boosting schemes could make shopping with your credit card--many of which offer more lucrative rewards than debit card rewards--in vogue again.
Not all banks have rewards programs for debit cards. According to the Florida Sun-Sentinel newspaper, a recent survey showed that 40 rewards programs for debit cards were being offered by the 110 largest banking institutions in the 10 largest U.S. markets.
But even if you're not earning rewards with your debit card like you are on your credit card, you could still be facing more fees if the swipe fee restrictions are approved by the Federal Reserve this summer. The banking industry is trying to stop those caps on fees, but large retailers are pushing for them by suggesting a fee cap will allow them to lower prices for consumers.
Debit card fees on the horizon
Some banks have already instituted fees on checking accounts and more are expected. CNNMoney reports that some banks are already experimenting with higher ATM fees by charging as much as $5 when a noncustomer uses one of their money-belching kiosks.
Chase has already rolled out a $5 fee in Illinois - which is in addition to what your bank might charge you for using an out-of-network ATM machine--and a $4 fee in Texas. More than a fifth of Chase's $400 million, 16,000-ATM network is in those two states, so the bank is using them as testing grounds before rolling out the higher fees nationwide.