The hidden fees in debit Cards

Debit cards have a reputation for being more straightforward than credit cards.  As a debit card user is only spending on his or her own account then there are no high interest rates to worry about, and there are fewer surprise fees.  While all this is largely true, debit cards do carry a certain amount of fees.

One way in which debit cards carry fees is through the amount which they charge to a shop or service provider for processing the transaction, what is known as a “merchant’s fee”.  The market leading debit card, American Express, has some of the highest merchant fees among all payment cards, whether debit or credit.  This is what pays for the large amount of member benefits which the American Express card has.  This can lead to a number of disadvantages for the card user, from a reduced number of outlets that accept American Express, a refusal to allow American Express cards the same sales terms as other credit cards or an explicit surcharge in purchases that use American Express.

Another area where debit cards can add fees for a card user is when using a card abroad.  As debit cards are more recent they do not have the extensive international networks that credit cards have.  This is largely changing.  As well as a higher risk that the card will not be accepted abroad when the card is accepted this can mean that debit card users can suffer a number of hidden fees.  These fees usually take the shape of cash machine charges and worse currency conversion terms.

The biggest set of potential fees is with overdrafts.  Where a credit card has a segregated account, where the card user has a separate account for their card spending and their bank current account, most debit simply charge on the bank.  American Express is an exception to this as it also has a segregated account, even though it is paid off in full at the end of each month.  The integrated nature of the current account debit cards can lead to a danger of unauthorized overdrafts.

An unauthorized overdraft is when a bank allows for an item to be charged against a current account even when the account does not have a positive balance and any borrowing requirement that has been agreed by the bank is exceeded.  Under the terms and conditions of most bank accounts, banks are able to charge fees for starting an unauthorized overdraft which can be ten times the spending that has been occurred.  Unlike a credit card, where providers mostly decline credit card transactions where the borrowing limit has been breached, debit cards tend to be accepted, leading to the unauthorized overdraft charges.