When Is A Debit Card Not Like Cash?

Just ask University of Minnesota senior Toussaint Morrison.  In September, Toussaint nonchalantly swiped his debit card for a candy bar and ended up paying over $80 for his sugar fix. 

While acknowleding that "it's my bad", I'm sure he wished he'd understood his bank's policies for posting deposits and withdrawals a bit better -- along with why different ATM machines seem to have given him different balances.  Eighty bucks for a Snickers ...

According to a recent report from the Center for Responsible Lending, 18-24 year-olds rack up over $1 billion in overdraft fees each year.  No doubt insignificant purchases such as a McDonalds or Starbucks contribute heavily.  For that age group, $12 is the average debit transaction amount that causes an overdraft.  The median fee charged to those young folks:  $33.  

Priceless.  For every $1 a customer is in the red, the bank makes more than $3 in fees. Debit-card transactions are the main cause. 

In July report, the same group that found overdrafts cost consumers of all ages $17.5 billion in fees for $15.8 billion in loans. (The group considers allowing overdrafts to clear to be high-cost loans.)  This represents almost 40% of bank and credit union income generated by fees, up from 27% in 2004.

Banks say they order withdrawals from largest to smallest to ensure that a consumer's most important bills such as rent, car loan or mortgage are paid before that ringtone download or Big Mac.  Institutions are also blamed with posting withdrawals almost immediately while delaying crediting deposits.

So how can you avoid all those fees going out of your account into the bank's? 

Simple:  use cash. 

No, not a debit card that is "pseudo-cash".  I mean the real thing -- the green stuff.

Using real cash has been a magical experience for Lori and I.  Since going 100% cash for our discretionary (areas with a lot of leeway regarding how much or little you spend) spending on groceries, eating out, entertainment, fun money, clothing, gifts and miscellaneous items, we've saved $1000s now going into our retirement account.  In fact, a couple of years ago we compared our spending now with our pre-cash (we put everything on a credit card) days and discovered we are fully funding two Roth IRAs every year with our savings. 

And, we never have overdrafts.  If we don't have it, we don't spend it.  If we do use a debit card (haircuts and gas mostly), we immediately deduct it from our check register.  Hmmm, just like it's no longer in our account .... ah ha!

Life takes Visa.  Wealth takes cash.  Keep it your account rather than giving it to the bank.  Works every time.