 Debit Rewards cards not so rewarding for retailers, are they for you?
If you have or have thought about getting a debit card I’m sure you’ve seen these rewards cards that get you points or percent cash back. What most people don’t see though how or why this is done and the impact of this hason the retailer. Their bottom line and what you pay for goods.
What you’re not seeing is that bouncing the debit transaction off credit card most commonly Visa or MasterCard. To withdraw cash from your account to pay for purchases cost the retailers up to 3% which is taken a processing fee.
In turn which the bank gives you from up to 1.5% they in turn are sharing the money they took from the retailer. See how this equates…
You go to your local outlet and buy a Nintendo Wii console for $249.99 the state sales tax is 6%. The total 264.99 is You whip out you debit card and chose credit. How much did the retailer get? Would you say 264.99? If so you’re wrong…
The retailer gets 264.99 minus 2.5% (usually) = 5.38
Now subtract that from 264.99 and you get 259.61 now minus the sales tax 15.00, That’s paid to the state. It leaves you with 244.61
How much do you make? 2.65 The bank made $2.73
Now what you need to know is the retailer pays 242.25 for that Wii (yes they make virtually nothing) 244.61 – 242.25 = $2.36 is all the retailer made!
They made $2.36 , if you had chosen debit? They would have had made $7.74 and assuming you bank isn’t run by Fee Nazis debit should cost you nothing. If it costs you to use debit, I suggest you use another bank! Also Rewards cards are even worse they keep most of the money in exchange for points or travel miles. With my capitol one card if I spend $2,000 I can get like $5 wow!
Now this is somewhat of a bad example because it’s a fixed price item. But that retailer is going to make that up somewhere know how? They raise the price of common items. Who buys these items? You do, thus a vicious cycle that hurts you in the end.
Also you have to claim it on your tax returns and pay taxes on that money. It’s a vicious cycle in the end the banks as an entity are the only winners.
It really a big deal? No that one person doing this or not makes difference. Its the fact a good 50-75% of debits that happen as credit that’s done at the store I work at is done so they can earn their rewards.
Not all reward cards are bad there are true rewards cards out there like discover card where I get 1.5% cash back on regular purchases and 5% in a particular category like gas or movies that rotates each month. That and deals with retailers. They are already taking their percent from the retailer regardless since it is a credit card.. They are just enticing you to use their card more.
It just irrates me people are seem too oblivious to were this money that pays thier debit rewards comes from. I'm all for a more informed consumer. But, so many seem to have a me cave man, me make it credit, me get reward, mentality.
Last edited by Regeneration; March 11th, 2008 at 01:34 PM.
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