The changing face of banking

Our Blue Mountain Beach neighbor Andy Anderson called with a great question about our recent column on FDIC insurance. “Does FDIC insurance apply to credit unions, too?”
Yes, FDIC insurance limits applicable to banks are the same for credit unions. However credit unions are insured through the National Credit Union Share Insurance Fund.
It’s tempting to complain about regulations and federal programs, I know I do.  However, New Deal legislation like FDIC insurance is an example of a federal program where all citizens benefit. No one has ever lost a dime in a FDIC or NCUSIF insured account.

NO MORE CHECKS
Speaking of federal programs, beginning in August, 65,000 Kansas City area residents will no longer get Social Security or Supplemental Security Income checks. As part of the Treasury Department’s Financial Management Service’s effort to reduce costs and to promote efficiency, recipients will receive pre-loaded debit cards.
There are around 4 million people nationwide who receive checks but have no bank accounts. These folks are stuck with burdensome check-cashing fees, sometimes as high as $20. Banks often have minimum account balances that may make a formal banking arrangement costly, also. 
In addition, debit cards are more secure than paper checks.
Technically anyone who receives Social Security or SSI benefits can opt for the new cards issued by Direct Express MasterCard from Commerce Bank in Dallas. Recipients can take the card to an ATM machine and withdraw cash or purchase merchandise from a retailer just as they would with a conventional debit card. Benefits are FDIC insured and are also covered by MasterCard’s standard Zero Liability protection from unauthorized usage.
Cardholders will receive one free ATM cash withdrawal per month while subsequent withdrawals will be subject to a 90 cents levy from Commerce Bank.  Like any debit card user, there could be additional surcharges at many ATMs. 
The trial is being initiated in Kansas and Missouri where almost 300,000 Social Security and SSI clients receive paper checks. If the pilot program is successful taxpayers will benefit also. Assuming all recipients switch to either traditional bank accounts (where deposits are made electronically) or change to debit cards, Social Security Administration handling and processing costs would drop $2.7 million annually.

PAPER OR PLASTIC?
In 2006, for the first time, more purchases were paid for with credit or debit cards than checks. Debit cards have actually eased past credit cards. There is no definitive answer as to which one is better.
If you have a problem with impulse buying, then debit cards or checks are better since the money is zapped from your account.
On the other hand if you have the discipline to pay the account balance every month, then credit cards are superior. Also, credit cards give more options if the product is defective. Some debit cards allow you to dispute the charge but the policy varies by issuer. Very importantly, the policy can hinge on whether it was a PIN purchase or signature purchase. 
Hit by a fraudster? Then a credit card offers far greater protection since federal law limits your liability to $50. With a debit card the maximum is $50 if reported within 48 hours. After two days, the liability increases to $500. Waiting longer than 60 days means you could be responsible for the entire amount of the fraud.
When debit cards were first issued, most banks would deny a charge if there were insufficient funds available. However most banks now will approve the purchase then nail you with an overdraft fee. If you use a debit card, sign up for low-cost overdraft protection.
To avoid overdraft charges, there is a simple solution: Pay cash.

Correction: In our July 26 column, Pat Munroe’s name was spelled incorrectly.

Buz Livingston is a certified financial planner. He operates Livingston Financial Planning Inc. focusing on hourly financial planning and investment management. Listen to his radio program, Money and Music, every Wednesday at 8 a.m. on 107.1FM, 30A Radio or www.30Aradio.org. Contact him directly at (850) 267-1068 or at LivingstonFinancial.net.