One of the great things about debit cards is that it is that it is possible to get items with the convenience of credit cards without having to worry about getting into debt. On most debit cards it is also possible to withdraw cash at the same time as getting an item.
This service is discretionary, in that a shopkeeper does not have to offer it. Many will because it is a way of saving journeys to the bank. An average supermarket has to make seven or eight trips daily to the bank if they had every transaction in cash, and not only do these distract senior staff, but insurance policies often dictate some security measures that are inconvenient and expensive. As going to the bank to deposit cash is one of the areas where a supermarket is most vulnerable to theft then the number of visits to the bank can directly affect their insurance premiums.
Giving cash back on debit cards can get a customer do two things. First it is a way of trading cash for a more positive bank balance, thus saving a visit to the bank. The second reason is that it encourages the use of debit cards, which means that people are more willing to make larger purchases as they are not limited by the cash that they have in their pocket.
Some shops will not give cash back because they wish to discourage the use of debit cards as they are charged a merchant fee of around 1% of the value of the transaction. This is becoming less common as shop keepers realise that they are more likely to get a larger share of a customer’s spend when cards are easy to use.
Sometimes debit cards are allowed for cash back while credit cards are not. This may seem to be odd behaviour, but in fact it is perfectly reasonable. Withdrawing cash on a credit card incurs interest from the day that the cash is withdrawn. The interest can also be higher than other forms of interest. This means that credit card companies will want the cash back and purchase elements of the transaction recorded separately. This is not only an administrative chore for the shop, but it can also create resentment from the customer when they realise that they have been paying more interest on their credit card without being told. This is not the case with debit cards where the treatment is no different for cash as it is for purchases.
The great advantage of taking cash out on a debit card is that it saves fees from the ATM charge. This varies from account to account, but especially if the account is with a small bank or credit union then this can result in a large saving on bank fees over the years.
