Last week I was lucky enough to have been invited to another Financial Literacy Month event hosted by Interac. The theme of the event was about creating a discussion among various bloggers about personal finance (besides personal finance bloggers there were fashion, lifestyle and mommy bloggers also in attendance), as well as educating us on what we thought we knew about debit in Canada.
Just a FYI, this is not a paid post. I just really learned a lot at this event, and honestly, I’ve always been a fan of debit. Back when I first moved out of my parents’ place 5 years ago, I used debit as my main budgeting tool.
You see, when I would get my pay cheque every second week, I would divide that income into different savings buckets. I had automatic savings transfers set up to put money into my RRSP and TFSA (paying myself first!), then the rest of my pay cheque would be split into 4 different buckets: bills, travel, entertainment and miscellaneous. Then I would use my debit card to pay for everything I needed.
Because I never wanted to go into overdraft and be charged a fee, I would constantly check my bank account to see how much money I had left in each bucket. This method may not be for everyone, but it kept me on track with my budget, so I rarely overspent. And with almost every major banking institution having a smart phone app nowadays, it’s way easier to do this now compared to 5 years ago.
Although I have been a fan of debit for many years, there were still a number of things I learned about it that I’m sort of ashamed to say I didn’t know prior to last week’s event. So, to make sure you have all the facts unlike me, I’m going to break down some of the most important things you need to know about debit.
1. Credit Isn’t Necessarily Safer to Use If You Want to Avoid Fraudulent Charges
I really don’t want to admit it, but for the past several years I’ve believed that it was safer to use credit over debit when it came to avoiding fraudulent charges and card skimming. I’ve had experiences with both actually, having had my credit card and debit card compromised on different occasions. Thankfully I never had to pay a dime in either case, but for some reason I got a bit scared and started using my credit card more and my debit card less.
Here’s the thing, Last year debit card fraud losses were at a record low, largely because Interac has put in place protections like their Zero Liability Policy and Interac Flash. Another important thing to note is that the number on your bank card is not the same number as your bank account, unlike your credit card. That means that transactions can’t be carried out without your card present, so fraudsters can’t make purchases with your card number over the phone or online.
2. It Might Actually Be Smarter to Use Debit for Online Purchases
Did I just seriously say that? Yes, I did! I can’t remember the last time I used my debit card to buy something online, but I might have to start using it when I start this year’s Christmas shopping. You see, when you use debit to buy something on an e-commerce store, your payment is conducted through Interac Online, which leverages the security of web banking.
Because none of your personal financial information is ever provided to the online merchant, you avoid card data security breaches, and the merchants win too because they receive secure and non-refutable transactions.
3. You’re Helping Out Your Local Businesses When You Use Debit
I still sometimes get annoyed when I go to a local shop or restaurant, and they have a sign that says they don’t take credit. I knew it cost merchants money to provide customers with credit as a payment option, but what I didn’t know was how much they had to pay for it. When you use cash, obviously that doesn’t cost the merchant anything. When you use debit, it costs them pennies on the dollar. When you use credit, it can cost a merchant an average of 1.5%.
As an example, let’s say you spend $100 at a local restaurant. If you paid your bill with credit, that restaurant would have to pay $1.50 for that credit payment. That doesn’t sound like much until you factor in that if you’d used debit that restaurant would only have to pay 6¢. Needless to say I’m going to make a point of using debit at my favourite local grocer. And now I know why they look so unhappy when I whip out my credit card when I’m only spending $10 on vegetables.
4. Credit Cards May Be Sexy, But Debit Won’t Get You into Debt
I do feel like credit cards get a lot of attention in the personal finance blogosphere, and I totally get it. There is a plethora of credit cards out there, all offering lucrative promotions and point systems. Although I definitely enjoy using my credit card (the convenience factor, come on!), I’ve actually never paid for a credit card in my life and I don’t believe they are right for everyone.
Let’s be honest, a lot of people are in debt because of credit cards. They put something on a credit card with the full intention of paying it back, but when the time comes, they can only afford the minimum balance. When it comes to budgeting, I still believe that debit is the way to go because you literally cannot buy anything if you don’t have the money to pay for it. I just wish I got points or rewards every time I used my debit card.
5. There’s Only One Debit Company in Canada
Again, I can’t believe I didn’t know this already, but Interac is in fact the first and only debit brand in Canada.
Are you a debit or credit lover? Let me know which you prefer and why!