Are Debit Cards Dead

The Credit CARD Act of 2009, as well as the Dodd-Frank Act Financial Reform Act and interchange and overdraft fee reform, have reduced revenue banks earned from the credit and debit cards consumers. Banks have responded by reducing or eliminating rewards programs and other perks and increasing ATM fees to $5 and increasing other bank fees.

Some reward cards program will be funded by retailers where you use your card instead of the banks. If frequently shop at specific businesses your bank may request that the retailer offer discounts.

This however can work against consumers because it will force consumers to spend more money to get fewer discounts. Retailer claims consumers will get more discounts and offers based on their shopping history. Consumers can still get rewards with airlines, hotels and credit cards.

Wells Fargo ended it's debit rewards card program and is currently testing a $3 monthly fee for debit card users in four states. Chase, SunTrust, Continental and United ended their debit card rewards program in July 2011. Free checking at some banks such as Bank of America will also be eliminated. TD Bank still offer debit cards.

Ally Bank offers a debit card reward program that puts cash into a consumer’s account. However, consumers do not earn points or miles with every purchase. The cash is used for making purchases through partner retailers.

Perk Street Financial offers an online checking account that provides rewards for any checkcard card credit transactions. You can earn 2% cash back if your balance is over $5,000 up to 90 days.

If your balance is under $5,000 after the 90 days introductory period, you will earn 1% rewards. The bank doesn’t charge monthly maintenance fees and offer 5% cash back with partner vendors which change each month. Use financial site like bankrate.com to comparison shop for debit card reward programs to find the best deal.

Beware of Prepaid Cards

Prepaid cards are reloadable and can be used for purchases at businesses that accept credit cards and can sometimes be used for ATM withdrawals. A prepaid card should be used in addition to having a traditional bank account but should not solely for money transactions.

There are many advantages to using prepaid cards but there are also many disadvantages. Prepaid cards work similar to debit cards for making payments or purchasing items.

Prepaid cards are helpful for those who cannot get a credit card or open a bank account due to bad credit. Prepaid cards are also helpful if you don’t want to carry large amounts of cash but should only be used as a temporary measure until your financial situation improves.

Prepaid cards have activation fees, monthly fees and other hidden fees. Some prepaid cards have activation fees up to $39.95 but most fees range from $2.95 - $9.95. They also have less protection against loss or theft. Be sure that the bank prepaid card you use is FDIC insured. Prepaid cards are not reported on your credit report and cannot help rebuild your credit.

Some consumers have been scammed by companies regarding prepaid cards. Over 100,000 consumers who paid for payday loans online were tricked into paying for prepaid cards instead. Consumers signed up for payday loans but were tricked into signing up for prepaid cards with a zero balance. Consumers paid up to $54.95 for the cards. However, the Federal Trade Commission sued the company Epiq Systems and required a refund of $1.9 million dollars for refunds ranging from $10-$15 each.

Many non-financial companies also offer prepaid cards such as Facebook which is available at Target and Wal-Mart. The cards can be used to purchase Facebook credits which are applied to purchase games or other applications. Comparison shop and read all the fine print before choosing a prepaid card.