Merchant fees
The bank gets a cut of every purchase you make. When you charge something, 1-3% of the amount goes to the bank. So even if you pay it off every month, they still make a little bit. But not everyone pays off the card every month. Some people carry a balance, some people pay late fees, etc.
I would imagine merchant fees. Don’t question it!
Oh! The Dreaded ‘Double Ninja’!
And lots of people keep massive balances on their cards and pay tons of very high interest. While those of us who don’t pay interest aren’t quite as profitable, we’re safe and so worth it.
Here’s what I get from looking up “what percentage of credit car users have balances” on Google
If you look at all credit card accounts, the American Bankers Association data shows that 43% of accounts were active and carried a balance at some point in the third quarter of 2022, 34% of accounts were active but didn’t carry a balance and 23% of accounts were dormant for the quarter.
It is worth noting that not all credit cards are the same or worthwhile.
You should do a good bit of research into finding the one that best fits your needs (there is almost certainly a few that meet it). Some really suck. Some will cancel the card of you pay it off every month. There are thousands to choose from.
I don’t do any sort of automatic payment on any bill; I want to be able to review the bill and verify the charges before paying. If you’re worried about forgetting, the bank or other biller can send you reminder emails when the bill comes due. (Another thing I do is not to get printed bills or other statements. Instead, I download PDF copies that I keep in folders on my computer, sorted by date.)
I have my auto payment set to pay on the last day of the billing cycle. I get notified on the first day of the cycle. That gives me plenty of time to review the bill, if I so choose.
One thing that hasn’t been mentioned yet. There are credit cards that offer car rental insurance..
All of the rental services will try to upsell you their insurance, so this will let you comfortably tell them to sod off.
While you might already have vehicle insurance that covers rentals, filing a claim on your card won’t affect your rates.
That’s exactly how I use it. I’m very diligent about paying off my credit card bills and so I’m essentially using my checking account for purchases, just in a roundabout way.
Buy with credit card > transfer money from checking out to credit card company to pay off bill > purchase complete.
I have excellent credit and no real debt aside from my mortgage. (Even my car is paid off.)
And my credit card works as a safety net as well, for an emergency. A bit over a decade ago I found myself in a bad financial situation, where I was unemployed and had no income at all, and had to get by for a few months. I used my credit card for essentials, racking up some debt, but once I got myself back on my feet I was able to pay it all off and there was no real long-term financial harm. That’s not something I like to do, I hate debt like the plague, but it’s great knowing that it’s there if I have no better option.
Around here (western Washington State) they charge more in debit or credit, but charge less if you pay in cash. Some places at least, others charge the same regardless of payment type. I’ve never seen a place that charged more for a credit card than a debit card.
I only have one card that works that way. I got an Amazon credit card (through Chase) which gives me 5% cash back on any Amazon purchase. At the end of every month, that card is automatically paid off from my checking account. It’s essentially a 5% discount from everything I buy on Amazon (which is a crap ton of stuff) without any additional hassle. I’ve been doing that for a while now and there is absolutely zero downside. It’s like finding a real life financial cheat code. Granted, it is only good for shopping at Amazon, so if someone didn’t ever buy anything there then it wouldn’t be that great. (Unless you are just wanting to build up credit, in which case you can still use the card for any other purchase you want, just without that cash back, and still get it automatically paid off.)
Not having a credit card does make car rentals more challenging, but not impossible. Enterprise is quite civilized about accepting debit cards, as we found out last year. We did have to show proof that we lived within a reasonable distance of the rental location and IIRC DLs did have to show our current address, but that wasn’t a problem.
I’ll echo the others on the value of credit cards, provided you never maintain a balance.
Besides the other benefits mentioned, if you use them for regular periodic purchases (for me, one card is groceries, gas, and dry cleaning; the other is the monthly bills like the phone and gym), it’s an easy way to track your spending, since the card will give you a breakdown of your purchases each month.
A credit card represents financial security in the event of fraud. A debit card has no such security. If you already have financial assets then get a credit card that pays you for using it. If you pay it off every pay period it’s literally money in the bank. If you travel you should have 2 credit cards and carry them separately in case something happens to one of them. You don’t need a massive credit limit to be useful. It should be high enough to cover a financial emergency such as a car mechanical while traveling or your air conditioner breaking down.
I have the Amazon card too. I also have a “Citi Custom Cash Card” which gives me 5% off on every purchase I make in whatever category I spend the most on in a month (usually groceries). And a Costco Citi Visa which gives me rebates on any Costco purchases. Plus, Kroger gas station gives me discounts on grocery store purchases, so I often buy an Amazon gift card (5% discount, double fuel points on Tuesdays (? I think) at the grocery store, and get a big gas discount (plus Kroger gas is the least expensive in my area) .
For a $100 fee, I got a Hawaiian Airlines card and flew (otherwise) free to Hawaii a few months ago. Still have miles leftover which will transfer to Alaska Air. )
Several years ago, I had upcoming back surgery and a $5000 out-of-pocket. I whittled it down with 3 cards with new card-owner bonuses and 2 new savings accounts with bonuses. Canceled all as soon as the initial qualifying period was over. Got $1300 for my efforts. (it took a spreadsheet to keep track.)
I have never carried a balance. I pay off every card at the end of the month.
Right, but they’re closer to credit cards than pure (PIN) debit.
PIN debit means: you enter PIN, money gets taken from your account instantly (well, the transaction goes through instantly).
Signature debit (when you use it sort of as a credit card) means you swipe/tap/insert, sign (maybe!), an auth happens, and the transaction gets batched with the credit transactions. More importantly, it means that you get the brand (Visa/MC/Discover) protection as if it were a credit transaction. Google “signature debit protection” for more.
I would never, ever, ever do a PIN debit transaction using a card that has a brand logo on it for this reason. There’s no reason for me to do so. The merchant might want me to, as his interchange rate is lower for PIN debit, but that’s his problem, not mine–and if he tries to force me to do PIN debit, that’s called “steering” and is a violation of his merchant agreement and you can get him in trouble for it (surely not worth it, but the threat should get him to back off if he’s being obnoxious).
Yep. The card industry’s revenues are about ten cents on the dollar spent. That’s not all interchange fees–it’s mostly interest/late fees. Nice racket.
Note that now that grocery store take cards, paying cash is kind of overpaying: they’re making a couple of points extra off you. This is why, back in the 80s, I remember being told “Grocery stores will never take cards–it’s not worth their while”. Welp, that sure changed…when it become NOT worth their while NOT to take them!
Winco still does not take credit cards, citing fees. Their big priority (they say) is keeping prices as low as possible, so they don’t want to deal with offering services that they’d be paying fees for. They don’t work with Instacart or other delivery services, for the same reason.
I only do autopay if the company gives me some incentive, like a bill discount. Otherwise I set up the bank transfer by hand, which is better for me in keeping track. And a lot of places allow you to schedule when the payment will be made, so you get the same benefit as end of cycle payment as automatic payments.
As far as I know, Signature Debit was a uniquely American thing that was never used anywhere else and was a work around for the lack of a national debit network. Canada had Interac (PIN Debit) a good decade before the US so we never had that kludge.
My Bolding.
That is the key, although I would say that you should use a credit card in preference debit card all the time.
Like you (the OP) I have a decent bank balance and apart from the usual debit card I have three CCs. The one issued by my bank, I use for most day-to-day transactions. I have another that I use for all car-related expenses and the third is only used enough to keep it current. All of these are paid off in full each month, so incur no interest.
As noted above, CCs are better protected if a transaction goes wrong. Apart from car rental, I find that hotels also expect a CC for the same reasons. Since I never spend more than my current account will cover, the free credit on a CC matters little, but it does help to smooth out expenses.
We travel a good deal and I like to have instant access to funds, wherever I am in the world. Insurance is fine, but often not instantly available, so the ability to get me and my family to wherever they need to be is reassuring.
I recommend getting a credit card because, as you said, debit cards directly tap into YOUR money so, if you get victimized, your money is gone. With a credit card, you are robbed “indirectly”, so to speak. You can contest the charges and take action to deal with the situation while your money is still in a bank where it belongs. I never use my debit card for purchases for that reason.