There are a few points to focus on as you compare debit cards, and what they have to offer. Fees, any conditions and ways of accessing the account may present differences between different providers. Special offers may include cash-back for signing up or the chance to earn rewards points on your account balance.
What fees can I expect to pay?
Account keeping fees
Debit cards come with minimal account keeping fees, typically between $3 and $5 per month, and this may be waived if you deposit more than a certain amount each month (usually either $1,000 or $2,000). This may typically be your salary payment.
You will still have to pay ATM fees if you withdraw money from an ATM that is not owned by your bank. This is usually $2 but can be slightly more or less (from around $1.50 – $2.50).
If you choose to apply for an overdraft with your account, you may have to pay some sort of monthly fee to maintain it, and a separate fee when you actually end up using your overdraft to cover a bill before you are paid (for example). The fee can be minimal (starting from around $5) and if your problem is simply cash flow, an overdraft will really help you keep your creditors happy and you’re your bills on time, so it can be worth the expense, but as always you need to manage it carefully.
Read the sections below where they cover overdrafts for further information.
Minimum purchase amounts
A minimum purchase amount is not technically a fee, but when you have to spend as much as $10 to be able to use your debit card or to get cash out the effect is exactly the same as if there was a fee. If this counted as a fee that they had to list on the terms and conditions of the card it would also be one of the highest, so it’s definitely worth taking note of any. (Example – some debit cards issuers will pay you back any atm fees provided you withdraw over $200)
International transaction fees
If you use your debit card overseas, or for online purchases from overseas retailers, you can expect to pay currency conversion and transaction fees of a few dollars per transaction, or a certain percentage, usually between 2 % and 3%. This will vary depending whether your card is provided by MasterCard or Visa. See the relevant section below, and the blog for more information on international transaction fees & atm fees, including how to minimise them.
Statement and admin fees
Other administrative needs, such as extra statements, ordering a cheque, processing an international transfer and others will also incur fees. You should receive a full list of fees and charges payable when you receive your debit card, so keep it and refer to it if you think you might incur a fee for a transaction.
These are mostly also available online, and on debitcards.com.au the major fees will be mentioned along with other card features and pros and cons of the card where appropriate.
Avoiding debit card fees
All of the fees above can be avoided at least some of the time, so your monthly fees should be minimal when you use a debit card. It is a sad fact that Australians tend to pay as much as $9 per week in bank fees in 2013, however the good news, form the Australian Bankers Association (ABA), is that for the third year in a row the amount paid in bank fees by Australians has fallen. Knowing what fees you are eligible for and minimising them should help keep that trend going down.
- Choose an account with low (or no) monthly account keeping fees.
The NAB and a couple of other banks do offer accounts with no monthly fee, whether or not you make a deposit.
- Make the necessary deposit every month to avoid any monthly fee that does apply.
Whether its $1,000 or $2,000 set up an automatic transfer or deposit that amount every month, or get your wages paid into the account.
- Figure out where the free ATMs you can access are, or pick an account with free atm withdrawal fees at places convenient to you. Or only withdraw money when making a purchase at the supermarket checkout or otherwise, where it’s free.
(When you withdraw money from most convenience stores, supermarkets or non-bank ATMs you’ll be slugged with a fee. Even paying via debit card for purchases can mean you pay a fee of anything between 40c and $1 sometimes too).
- Don’t apply for an overdraft
If you apply for an overdraft, you will be allowed to take your account into minus when you make purchases or withdraw, sometimes up to $1,000 or more. Beware though, any money you use in overdraft will be taken out of the next money paid in to your account, and where an account is in overdraft for a number of days interest charges can appear (this will still be less than on a credit card).
Overdrafts and debit cards
An overdraft is the only way you can end up in debt with a debit card. It is a pre-approved short term loan facility that you can apply for with your bank account. The overdraft amount you are approved for will vary depending on your income, your status with the bank as a customer and your history of dealing with that particular bank. Most people get an overdraft amount somewhere between $100 and $1,000.
An overdraft is given with the expectation that the amount loaned will be paid back as soon as the next payment is received on your account. It is always capped at a relatively small amount and is designed to provide convenience, and keep you out of trouble with other external creditors.
When is using your overdraft smart?
Using your overdraft to make your credit card payment when you only pay $5 to do it on time could end up saving you much more than that in interest, if your credit card has a balance owing and has a standard interest rate applied – between 12% and 21%. Missing a credit card payment will also mean you owe late payment fees and additional interest on the fee amount too.
For example, on a credit card balance, if you miss the minimum repayment amount & date one month you’ll immediately receive a charge, which will be added to the overall balance, so pay interest on the whole amount. Next month the balance will have increased so will incur an even higher interest charge. And so the cycle starts again. It will only keep growing from there too!
An overdraft also provides convenience. If you’re out of money but still need to buy essentials an overdraft facility should help cover your grocery purchase and bills can still be paid on time, even if your pay is coming a week later, for example.
It’s important to weigh up the pros and cons of using your overdraft before using it, and to understand the times it can be helpful, or when you should be taking out some sort of loan to cover upcoming expenses and not relying on an overdraft.
When you do use an overdraft, it’s important to keep in mind the fact that you will incur an overdraft fee or penalty each time that you dip into it. Often it can be as small as $5 or so, but as mentioned it can end up costing you $20 each time. Check the terms and conditions on your bank account and the approved overdraft conditions. The good news is that the amount you can borrow on an overdraft will be significantly less than most credit cards, and the interest nowhere near as high.
Using your debit card overseas
Using a debit card while overseas, or to make online purchase from overseas retailers, can end up costing a lot by the time you factor in currency conversion and transaction fees, and overseas ATM withdrawal fees. These can be higher than Australian ATM withdrawals, which already cost $4-$5 each time.
Read the post on international transaction fees and ATM fees to find out how much your bank charges, and whether you could find a cheaper way to access your money while you’re travelling, such as a prepaid travel card, or a credit card with no foreign transaction fees.
PayPass or PayWave – what’s the difference?
Debit cards can be used to make contactless payments now, which means all you do for purchases under $100 is ‘tap and go’ at the cash register. No need to enter your card into a machine or use or remember your pin.
For purchases of more than $100 you will still need to know your pin – so make sure you still have it memorised. The two major credit card providers, Visa and MasterCard, have introduced their own system to accept contactless payments.
The Visa payWave system is operated by Visa, with Verified by Visa security. The MasterCard PayPass system is provided by MasterCard. All contactless terminals, especially those supplied by the major banks, will accept both Visa and MasterCard contactless payments though.
There is no difference in how the contactless payments operate for customers, as both comply with international radio frequency standards. The difference is simply in the name, and both cards are accepted at both terminals.
You cannot get cash out with either payWave or PayPass.