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Debit Card vs. Cash - Small Merchants

Posted by jamie_mt (My Page) on
Mon, Mar 16, 09 at 16:58


Last December, I posted here and got excellent advice about setting up appropriate spending categories in Pocket Quicken for my PDA. Not only have I gotten everything set up (and purchased a license for the program so it won't disappear), I've been developing a habit of entering checks/receipts the day that I spend for anything, from groceries to online payments/purchases. I've even learned how to split my receipts into several different categories, so I know all the different directions my money is going. While I realize this is "old hat" to some, I'm pretty proud of myself for getting this far in tracking my finances, since I've historically been too lazy to do so.

So my hubby and I have finally decided that it's time I transitioned from a paper checkbook to a debit card for the household account. I have a debit card for my personal account, but the daily limit is too low to actually make it very "usable" for things like gas/groceries (it's a credit union card - $100 per day limit), and all of the household expenses come out of the household account anyways. I'd resisted the debit card for several reasons, mainly security and a mental willingness to pay more for "stuff" when using plastic (the reason I'm paying down credit cards now). But I think I have the spending under control, and with more and more stores/restaurants refusing to take checks anymore, I either have to get a debit card, or carry quite a bit of cash with me (since I'm trying to pay the credit cards off, not use them at the moment). Right now, I don't carry cash at all, since for me, it's far easier to spend cash than writing a check (I know it's all mental - but it's there).

The only thing I worry about with the debit card is smaller merchants. I've read that if you are purchasing a smaller amount that it actually costs the merchant more if you use a debit/credit card than the purchase itself. I try to shop locally whenever possible, and I don't plan to carry my checkbook once I start using the debit card. I'm mainly thinking of my weekly/bi-weekly cricket purchases at the local pet store - $6.00 each time, or the occasional small purchase at the health food store.

So can anyone give me advice on when to use the debit card vs. when to pay cash - ie, what dollar amount (approx.) is the "cut off" point for smaller merchants having to pay more in fees? I figure I'll just take out a small amount of cash ($20.00 or so) every month to carry for those times, so local "mom & pop" stores don't get hit with that extra fee for smaller purchases.

Thanks for any advice on this!

Follow-Up Postings:

RE: Debit Card vs. Cash - Small Merchants

Sorry to report that I don't have any advice to offer regarding your plastic question, Jamie. Would the Credit Union increase the amount that you could use the card for, daily? But that doesn't give any info on what fees they may charge small merchants.

I came on to say how great it is to see your post ... I haven't heard from you in a long time and wondered how you've been doing. It would be interesting to a number of us if you could give us an update over on the KT.

ole joyful

RE: Debit Card vs. Cash - Small Merchants

Hi Jamie,

Great progress. I second OJ's suggestion to call the CU. I would think they will raise that daily limit. As a matter of fact, I'd be surprised if it isn't actually higher. Sounds like an old card and maybe you just missed the notice.

As far as fees go. I know a couple people that fall into the Mom & Pop class of business. Their fees for MC/V purchases seem to run about 25 cents per transaction + 1.7% of the total sale.

So, for the small guys that adds up quick. If you charged a cup of coffee or a small drink the guy would be loosing on the deal.

On the debit side, I don't know if they all pay a fee or not, I think they do and I think it's a flat fee of 25cents per transaction.

I'd try to carry at least some cash for the small stuff.

Hope this helps,

RE: Debit Card vs. Cash - Small Merchants

I wouldn't worry about it and use whatever form you prefer. The only numbers I've seen was from Starbucks in 2004. They paid 8 cents for PIN based and 10 cents for signature Debit card transactions on a $3 purchase.

The merchant should adjust the prices, if needed, to remain profitable. Your also assuming a cash transacation is "free". Handling and processing cash transactions have plenty of hidden costs. Most retail managers I know would love to only work with electronic transactions.

RE: Debit Card vs. Cash - Small Merchants

Thanks guys. I've checked with the credit union, and due to my previous bad habit of overdrafts, I'm stuck with that lower limit. That's basically just my "mad money" anyways, so it's not important. The debit card that I signed up for from our household bank account has a very high limit ($1000 per day), so no problems there.

Small merchants often have higher prices already, so I'm not going to contribute to making those prices even worse by using a form of payment that costs more when I can help it (if they raise their prices, I'm still the one that ends up paying the fee, & more people will choose to shop elsewhere). So I'll use cash for anything under $10 or so, and the debit card for everything else. That should work fine, I think. I'm not worried about the big chains, just the very small local businesses.

Thanks Ed - I'll try to stop by the KT later. Not sure if I still know anyone over there or not!

RE: Debit Card vs. Cash - Small Merchants

Five years ago it was about 7-8 dollars. I only saw one small grocer that had a sign up for a minimum purchase of $7 if using a card. Convenience stores raised their margins from 33% to 40 % to cover the costs.

RE: Debit Card vs. Cash - Small Merchants

The business where I work is charged about 3% to 3.1% aggregate over a monthly period on credit card transactions. Debit cards aren't accepted on the terminal, so I can't say if the fees would be the same, lower, or higher. Assuming it would be the same, I don't consider 3 cents on the dollar to be high.

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