Debit Cards vs Credit Cards vs Cash

Debit cards, credit cards or cash?  Which is better for your monthly expenses?  The way you pay can mean a difference of $284, $380 and $572 in net transaction fees per year on a $1000, $1500 and $3000 monthly budget respectively.
    Paying in cash is cheap, but not necessary convenient.  Paying with debit cards is convenient, but the banking fees can add up to over a $100 each year.  Credit cards are convenient and many credit cards will pay you to use them.


Credit Card Nerd Math

Using a credit card for your monthly purchases will reward you with every transaction.  There is a $39 annual fee, but purchasing as little as $325 a month would pay for the annual fee.  Depending on your monthly budget, you can earn $441+ per year on your monthly transactions.  Even a modest $1,500 monthly budget could net you $249 each year.
    Using a debit card for all your transactions would cost between $0 to $131.40 a year in transaction fees.  Maintaining a $2,000 balance will give you up to twelve free transactions for some of the best free checking accounts.  Making more than twelve transactions in a month, you can expect to pay $10.95 per month for an unlimited account.
    If you pay everything in cash, then a free checking account would be more than good enough, assuming you don't go to the ATM every day.  Net transaction expenses is $0 for many Canadians that pay everything in cash.
    Below we have a chart with the annual cost in transaction fees for different budgets if you use a credit card, debit card or cash.


Annual Cost of Credit Cards, Debit Cards and Cash

Monthly Budget

Number of Purchases

Credit Cards

Debit Cards

Cash

$1,000

10

($153)

$0

$0

$1,000

20+

($153)

$131

$0

$1,500

10

($249)

$0

$0

$1,500

20+

($249)

$131

$0

$2,000

10

($345)

$0

$0

$2,000

20+

($345)

$131

$0

$3,000

10

($441)

$0

$0

$3,000

20+

($441)

$131

$0


() = refund or cash back



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A Wake Up Call

When I first decided to write an article on the difference on banking fees using a credit card, debit card or cash, I was expecting a much different result.  I personally can't remember the last time I paid a bank fee, but you hear about people complaining about fees at Canadian banks all the time.  $15, $20 and $30 in monthly banking fees, I just don't get it.  It took us less than ten minutes to find multiple checking accounts with unlimited transactions for less than $11 a month and many no-fee accounts with 10+ debit transactions a month.  How often are Canadians going into over draft or writing NSF checks?