Debit cards are good for people who don’t like carrying so much cash. They can be more convenient and safer, and they can also allow cash holdings to earn interest. However, it may not be possible to be completely cash free.
There are many advantages to reducing the use of cash. It’s not always convenient to carry large amounts of cash, but the need to spend money remains. Large transactions are easier with a debit card, and while cheques are an alternative, they often carry fees which may be small but do add up over time. It is also safer to walk around with a debit card rather than a large amount of cash. Money can be left in savings or investment accounts longer, earning interest that also adds up over time.
However, debit cards cannot be used for everything. For example, many merchants don’t allow small transactions for debit cards. This is because the shop pays a merchant fee for debit card transactions, usually between 1% and 2% of the transaction amount. This price is worth paying for larger transactions, but is often seen as inconvenient for smaller ones. As well, there may be minimum amounts for debit card transactions, such as a minimum charge of $10 or $20.
Some shops refuse to accept debit cards altogether. Although the transaction fee may be a small percentage of the merchant’s costs, it may be a large percentage of the profit margin. For example, a merchant fee of 2% of the transaction amount will eat one-fifth of a 10% profit margin. This can be a real problem for low-margin businesses such as groceries and garages, and also for shops that specialise in providing very low prices.
Person-to-person transactions are also less possible with debit cards, although this is changing with online payment services such as PayPal.
