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Cash Still King for Everyday Purchases

January 26, 2012 By

During the recent national recession, millions of consumers across the country drastically changed their purchasing habits to avoid credit card use. But even as credit card use has regained popularity in recent months, it turns out many still prefer to use cash.

A recent study by Javelin Strategy and Research found that the vast majority of Americans are still using cash to make most of their smaller, everyday purchases, according to a report from the Huffington Post. In all, 79 percent of those surveyed said they’d used cash to make a purchase of this type in the last seven days, compared with just 65 percent combined who used either credit or debit cards.

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However, experts say that cash has always been fairly popular among consumers when it comes to making this type of purchase, and it should grow neither any more nor any less popular in the coming year, the report said. Instead, it’s expected that as the economy continues to recover and people are more comfortable dealing with debt again, credit cards will begin to trend upward.

“We will see consumers convert [back] to cash for smaller transactions and credit card use will increase this year,” David Albertazzi, a senior research analyst with the financial services research firm the Aite Groupe, told the site.

During the recession, credit cards became less popular and debit cards grew in popularity for small making purchases, the report said. But because banks have been introducing or testing new fee structures for debit card use, many consumers might have shied away from that method as well.

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Consequently, banks are still looking for new ways to generate revenues, and one way they’re doing that is by offering more prepaid cards, the report said. These accounts have grown quite popular in recent years, especially among consumers who cannot afford to maintain other types of bank or credit card accounts. Now, some banks are even testing ATMs that dispense prepaid cards as well as cash.

Many consumers shied away from credit card use during the recession, causing balances to fall considerably even after it ended. But now positive signs in the economy may be making consumers more optimistic, and they have returned to using these accounts to finance purchases with greater regularity.

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Finding Savings in a Lean Budget

January 25, 2012 By

This month seems expensive and I am looking for ways to save. I used $500 from my emergency savings to pay the deductible for my daughter’s December auto accident and that money was to be refunded by now. My insurance company is not returning emails or phone calls.  This is a major, highly rated company.  I sent my second email of concern to my agent tonight and told him that his company is not meeting my expectations.

I always have my W-2 from my employer by now.  For the past thirty-five years, my tax return would have been filed by mid-January.  No reasons offered for the delay—only a comment that W-2s are required by the end of the month. I will file the day I get my W-2, and hoping for a modest return which will help reduce debt.

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I have met my goal to reduce weekday lunch expenses by eating lunch at work at least 4 days a week in 2012.  I have not eaten out any week night, either. I do eat out on the weekends, but eliminating all week-day expenses is beyond my goal.  My weekend meals are with my daughter; her new job takes her out of the city during the weekdays so we spend the weekends catching up with one another and running errands. These meals are a connection to her.

I added a new goal: No debit card fees in 2012. I don’t have an excuse for incurring fees. I live in Iowa, one of the first states with ATM machines everywhere. I have two debit cards—one from my bank and one from my credit union. Both have multiple ATM locations I can use without a fee within blocks from my home and office. My credit union has a machine within 100 feet of my desk.  Hanging my head in shame!

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My daughter has dental insurance available to her at her new job.  I canceled her from my dental policy and will save almost $500 this year. She is getting a new cell phone; I will save nearly $1000 a year.

I am sending more money to emergency savings each month, so the small balance in my checking account keeps me alert.  It helps me spend conservatively—I actually had enough left in my checking account to pay my bi-annual auto insurance bill from my checking account rather than from my savings account where it had been budgeted. I am not yet comfortable seeing a low balance in my checking account, but we have not starved or failed to pay bills. It is just different; and that difference is going to allow me to retire without worry!

How have you achieved additional savings?

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Prepaid Cards: Hot or Not So Hot?

September 16, 2010 By

Prepaid-cards-poster Prepaid cards are a hot item these days. 

  • A recent Javelin study subtitled “The Rise of the Cautious Consumer” notes a decrease in credit card use, and an increase in prepaid card use.
  • A survey by Cardbeat  – a market research report published by Auriemma Consulting Group – found a big jump in the number of gift cards carrying a network brand, such as MasterCard or Visa.
  • A MarketsandMarkets study predicts the prepaid card market will grow from $290 billion in 2009 to $791 billion by 2014.

So what’s the deal with prepaid cards? Why so popular?

1.  They are available to anyone regardless of one's credit rating. Lost your credit cards due to bad credit? If you have money to load on one of these cards, you can get one. And like other debit cards, they can be used anywhere Visa, MasterCard or Discover cards are accepted, which also makes them useful for online shopping, for example.

 2. They don’t have to be tied to a bank account. That makes them helpful for someone who either doesn’t have a bank account, or doesn’t want to use a debit card tied to their account.

3. Apparently they can also be useful for money laundering, if you’re so inclined.

4. Parents may want to use a prepaid card to dole out money to kids. It may be a lot safer than giving your kids a debit card tied to your bank account.

5. They are safer than cash. Prepaid cards carry the same fraud liability protections as debit cards under Visa and MasterCard’s Zero Liability programs, though you will need to register the card.

But wait. There are drawbacks. A new study released by Consumer's Union says that "prepaid cards can be inferior to debit cards linked to traditional bank accounts in several ways" and details problems with these cards in a 32-page report. 

Here are some of the problems with prepaid cards: 

1. Fees, and possibly more fees. These cards typically carry a laundry list of fees, though I did notice when I reviewed Credit.com’s prepaid card directory recently that some cards seem to carry far fewer fees than in the past. But on average, fees are more than you would pay at most banks or credit unions for a standard debit card tied to free checking.

2. No credit. They don’t help build your credit rating. These are debit cards, not credit cards, and they aren’t reported to the major credit reporting agencies. If you want to build credit, a secured card is a better bet.

3. Safety. I pointed out that these cards carry fraud protections, but they are voluntary. CU points out that these cards are not covered by the same consumer protection laws that cover debit or credit cards, and that money loaded onto these cards may not be protected by FDIC insurance.

4. Overdrafts. According to CU's report, some cards will approve purchases even when funds are not available on the account. The consumer may then be charged a "shortage" fee of as much as $29. This is a concern, since Fed rules now prohibit debit card overdraft fees on standard debit cards unless consumers opt in.

So what do you think? Are prepaid cards hot, or not so hot?

 


Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Your Credit Crisis.

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Small Credit Card Charges Could Mean a Big Problem

August 25, 2010 By

You see a small charge on your credit card you don’t recognize.

What do you do?

Small charges you don’t recognize can be a sign of a bigger problem. The New York Times takes a look at a lawsuit filed in March by the Federal Trade Commission, which claims that during the past four years, scammers raked in more than $10 million by putting small bogus charges – ranging from twenty cents to $9 – on consumers’ credit and debit cards. And in a scheme that apparently has dragged out for more than a year, scammers have made fake $1 purchases on iTunes customers' accounts, only to follow up with increasingly larger ones, sometimes totaling hundreds of dollars.

An unknown charge could mean your account was compromised. Or it could just be that you don’t recognize the name of the company billing you for a purchase you made. After all, merchants have a limited number of characters with which to describe their products and services on statements, and those descriptions can be cryptic.

So what should you do when you find an odd charge on your credit or debit card statement? Here’s how I would handle it:

1.    Call the merchant to find out whether the charge is for an item you actually purchased. If the phone call doesn’t clear it up,

2.    Call your credit card company and file a dispute.

3.    If you believe your card number has been compromised – especially in the case of a debit card – cancel the card and ask for a replacement with a new number.

Remember, under the federal Fair Credit Billing Act, the most you can be held liable for is $50 in unauthorized purchases, and that's only if the card was physically presented in the transaction. Most card companies won't even hold you responsible for that if you notified them of the fraud promptly.

However, you have to read your statements to identify fraudulent charges – especially the small ones that are easy to overlook.


Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Your Credit Crisis.

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Are Debit Card Fees Coming?

August 18, 2010 By

Debit-card-fees My husband got a new debit card, and it came with new transaction fees. If he uses the card as “credit” (with no PIN) there’s no fee. But if he chooses “debit” and enters a PIN, the credit union charges him a 25 cent fee – for every transaction! A couple of times, he says he tried to use the card without a PIN but wound up paying the fee anyway. Needless to say, he's not happy with the change.

New Fed debit card overdraft rules went into effect this past weekend (I’ve been getting calls from my bank urging me to opt into overdraft protection – have you?) and the FDIC recently released an advisory letter to the banks it supervises urging them to make sure they comply fully with the new regulations, and go one step further and contact customers who use overdraft protection more than 6 times in a year to discuss less expensive alternatives.

Now that financial institutions will be taking a hit in overdraft revenue, are new debit card fees in order? Maybe.

Keep in mind that merchants aren't supposed to charge debit transaction fees – they are prohibited under Visa and Mastercard’s merchant agreements. In other words, a retailer isn’t supposed to tack on an extra fee if you want to pay with your debit card. Nevertheless, the California legislature recently passed a bill prohibiting debit surcharges. (Credit card surcharges are already illegal in California.)

But issuers are free to charge debit card fees, as they do in my husband’s case. Annual fees, transaction fees, or fees for certain types of transactions may become more commonplace – so watch your statements.

If you’ve been charged a debit card fee, we’d like to hear about it here. Share what kind of debit card fee your issuer charges, and feel free to name names!


Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Your Credit Crisis.

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