Why I think debit cards for brokerage accounts are stupid

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jhsu802701
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Why I think debit cards for brokerage accounts are stupid

Post by jhsu802701 »

Many brokerage firms offer customers debit cards against their accounts. Is it just me, or is this a stupid idea?

I use a credit card instead of a debit card. They say that possession is nine tenths of the law. If there's fraud on your credit card, at least it's the bank's money rather than your own money that's gone. If there's fraud on your debit card, it's your money that's gone.

Fraud on a debit card connected to your small account (like a bank savings or checking account) can easily lead to bounced checks and other overdrafts, which triggers lots of fees.

Fraud on a debit card connected to your brokerage account (which is probably much bigger than your bank accounts) drains your life savings. At least your bank account is probably "only" in the hundreds of dollars. Your brokerage account is likely considerably larger.

I've explained why I think debit cards connected to brokerage accounts are a bad idea for consumers. I'm not sure why brokerage firms like this idea. Doesn't offering debit cards mean more work and administrative costs for something that isn't part of the core business? Even if nothing ever goes wrong, don't frequent small transactions mean lots of admin costs for little benefit? Vanguard checks against money market funds have a $250 minimum size specifically to avoid frequent small transactions.
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HomeStretch
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Re: Why I think debit cards for brokerage accounts are stupid

Post by HomeStretch »

If you think brokerage account debit cards are a stupid idea, then don’t use them.

I use credit cards rather than debit cards for purchases due to better protections. I do have a VISA debit card for my Fidelity CMA (a brokerage account). I can use that card at any bank to access cash (up to something like $25k) from my CMA. I haven’t needed to but I like having the option.
Last edited by HomeStretch on Thu Jan 21, 2021 8:07 am, edited 1 time in total.
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beyou
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Re: Why I think debit cards for brokerage accounts are stupid

Post by beyou »

Banks (and brokers that offer bank-like services) offer this because some want it. It is usually optional to have a card at all. I called 2 banks and said I wanted atm only cards instead of debit cards, and they complied.

That said, for someone with poor credit, one can get the convenience of a cc even if unable to obtain a cc.
oldfort
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Re: Why I think debit cards for brokerage accounts are stupid

Post by oldfort »

jhsu802701 wrote: Wed Jan 20, 2021 10:52 pm If there's fraud on your debit card, it's your money that's gone.
This isn't true if it's linked to a checking or savings account at a bank. The EFTA/Reg E provides protection to checking/savings linked debit cards.
Spedward
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Re: Why I think debit cards for brokerage accounts are stupid

Post by Spedward »

Agree with others.

I have an FDIC insured brokerage account that offers an ATM card but I just cut it up when I got it. Just done ever use it. Problem solved.
hi_there
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Re: Why I think debit cards for brokerage accounts are stupid

Post by hi_there »

I suppose brokerage firms want to encourage you to keep your money in house as much as possible. The operational cost is probably not that much, or they wouldn't be doing it. Customer service, fraud protection, and other labor intensive work is probably outsourced to the debit card issuer (let's assume Visa). Once the "pipes" are set up for normal electronic transactions that are necessary to a normal brokerage account, it must not be that hard to open a channel to Visa. In fact, Visa probably absorbs a lot of the development cost, since Visa makes money through merchant fees later.

Is it smart for customers to use these debit cards? I would prefer not to, but if others think the convenience outweighs potential risk, then that is up to them.
criticalmass
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Re: Why I think debit cards for brokerage accounts are stupid

Post by criticalmass »

oldfort wrote: Thu Jan 21, 2021 1:01 am
jhsu802701 wrote: Wed Jan 20, 2021 10:52 pm If there's fraud on your debit card, it's your money that's gone.
This isn't true if it's linked to a checking or savings account at a bank. The EFTA/Reg E provides protection to checking/savings linked debit cards.
Before you can even say «Regulation E», let alone begin arguing about it, your account can be drained of your money. Then any payments bounce, eg taxes, mortgage, utilities, loans. Eventually maybe you'll get your money back. Good luck dealing with all the bounced payment fees around your payees and finding the time to deal with the aftermath, even if you get your money back.

Fair Credit Billing Act protections for credit cards are superior to Régulation E, and even better, your own money is not at risk in the first place.
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Watty
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Re: Why I think debit cards for brokerage accounts are stupid

Post by Watty »

Even having a credit card, or other loan, at a brokerage has risks.

The potential problem is that in all those pages of find print that you did not read there is a "right of offset"(Google this) where the financial institution can take money out of one account to pay of a balance on a loan. For for example if there is a bogus charge on your credit card you may dispute it and the credit card company may not agree in all cases. I you try just not paying it then they may be able to just transfer the money from your checking account to pay off the loan. There are of course details about just when they can do this and which types of accounts that they can use the right of offset with,

That is one of the reasons that I normally do not have loans or credit cards at financial institutions where I have any other accounts.
BuddyJet
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Re: Why I think debit cards for brokerage accounts are stupid

Post by BuddyJet »

I carry both Fidelity and Schwab ATM cards while traveling, particularly foreign, for their ATM fee reimbursement and decent exchange rates. Much cheaper than currency exchange shops and getting small amounts is practical.

To limit risk, my cards are linked to an account with only the cash I have put there for the trip so ATM fraud can only get to a small amount and not the main assets.
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iamblessed
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Re: Why I think debit cards for brokerage accounts are stupid

Post by iamblessed »

I was listening to clark howard the other night. Debit cards are big with young people they hate credit cards he said.
theplayer11
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Re: Why I think debit cards for brokerage accounts are stupid

Post by theplayer11 »

Schwab debit card for free ATM withdrawals overseas..case closed.
rich126
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Re: Why I think debit cards for brokerage accounts are stupid

Post by rich126 »

theplayer11 wrote: Thu Jan 21, 2021 9:08 am Schwab debit card for free ATM withdrawals overseas..case closed.
I just opened a Schwab account (for a bonus) and was surprised to get a debit card since I didn't recall asking for one. I'll keep it and since my TD account will become a Schwab account, I guess I will have it for a while :)

Honestly I rarely use cash for anything so ATM are rarely frequented although cash is used more often on my trips to Europe. Not sure if that changes post pandemic.
JackoC
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Re: Why I think debit cards for brokerage accounts are stupid

Post by JackoC »

hi_there wrote: Thu Jan 21, 2021 1:10 am I suppose brokerage firms want to encourage you to keep your money in house as much as possible. The operational cost is probably not that much, or they wouldn't be doing it.
I agree that's probably the reason, perhaps marginal net profit/loss on debit card business is viewed as worth it to encourage 'one stop shop' customers. Also actual cash at brokerages generally pays 0%, the customer might keep more if using it as a checking acccount, and they might make a little something lending it out (even if only to buy market instruments like CP or T-bills). But I don't judge the value of products based on what I guess (it's almost always a guess for a particular product) the provider is making. And having a brokerage account debit card doesn't fit for me. In situations where I'd have a large cash stash at one I don't like the idea of it having any direct connection to the outside world (I don't have check book for Vang MM fund either anymore). I would probably get my money back if somebody drained it but I wouldn't want to deal with that on a large amount. And then with MM funds paying almost zero, when best bank/CU alternatives pay 10's of bps, I have practically no cash at brokerages now anyway. Almost all our payments to outside world go through one checking account, though there's also a couple of semi-dormant checking accounts we could resort to if the main one were frozen.

We weren't travelling overseas a great deal pre-COVID, and while when working overseas I used to use ATM's (and not particularly care about fees), in recent years I prefer to get some foreign cash before we go (I know the rate isn't as good) and mainly use no foreign transaction fee CC's once there, just simpler. So a deal on overseas ATM's would not be a reason for me to have a brokerage account debit card and keep cash there at 0% to feed it. To each his or her own, obviously.
Topic Author
jhsu802701
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Re: Why I think debit cards for brokerage accounts are stupid

Post by jhsu802701 »

Watty wrote: Thu Jan 21, 2021 1:56 am Even having a credit card, or other loan, at a brokerage has risks.

The potential problem is that in all those pages of find print that you did not read there is a "right of offset"(Google this) where the financial institution can take money out of one account to pay of a balance on a loan. For for example if there is a bogus charge on your credit card you may dispute it and the credit card company may not agree in all cases. I you try just not paying it then they may be able to just transfer the money from your checking account to pay off the loan. There are of course details about just when they can do this and which types of accounts that they can use the right of offset with,

That is one of the reasons that I normally do not have loans or credit cards at financial institutions where I have any other accounts.
Actually, I like the convenience of having my savings account and credit card account at the same bank. I can pay my credit card bill electronically or in person. That said, I normally keep my savings account balance in the hundreds of dollars, not many thousands of dollars like some people. My Wells Fargo savings account is there for the convenience of making deposits and withdrawals.
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radiowave
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Re: Why I think debit cards for brokerage accounts are stupid

Post by radiowave »

BuddyJet wrote: Thu Jan 21, 2021 8:59 am I carry both Fidelity and Schwab ATM cards while traveling, particularly foreign, for their ATM fee reimbursement and decent exchange rates. Much cheaper than currency exchange shops and getting small amounts is practical.

To limit risk, my cards are linked to an account with only the cash I have put there for the trip so ATM fraud can only get to a small amount and not the main assets.
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MarkBarb
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Re: Why I think debit cards for brokerage accounts are stupid

Post by MarkBarb »

My only bank account (aside from an emergency account) is a brokerage account. I've segregated it from my primary brokerage account, but it is a brokerage account. I rarely use the debit card on it, but it is what I use when I need cash. In the US, that is a rare occurrence. When traveling abroad, a lot of countries are heavily cash based and so I need it more there.
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