Some merchants offer you the opportunity to get additional cash back when you pay for a purchase with your debit card. You can also use your debit card at an ATM if you need to withdraw cash from your account, but if the ATM is not part of your bank’s network, you may have to pay a fee.
One other major difference between debit cards and credit cards is that you don’t have as much legal protection if your debit card is lost or stolen. On a lost or stolen credit card, the most you’re responsible for is $50. But if someone steals your debit card, you could be re-sponsible for up to $500 in fraudulent charges or transfers unless you report the loss or theft of your card within two business days. You risk unlimited loss if an unauthorized charge or withdrawal appears on your statement, and you don’t report it within 60 days. So always be sure to check your monthly bank statements!
The card that may come closest to being “plastic money” is the stored value card. Gift cards and phone cards are the two types that most people know best. The cards are “loaded” with a certain dollar amount — $10, $50, $100, or any other amount — and that amount decreases with each use. For example, if someone gives you a $50 gift card to Bob’s Big Buy, and you buy something there for $30, you will still have $20 “stored” on the card. Two things to keep in mind about stored value cards: 1) You can’t use them in as many places as credit cards or debit cards. If you receive a gift card to Bob’s Big Buy, that’s the only place you can use it, and 2) They really are “just like cash” in that you’re pretty much out of luck if they are lost or stolen.
DO BANKS KEEP LARGE AMOUNTS OF GOLD AND
SILVER IN THEIR VAULTS?
Today, banks rarely keep gold or silver in their vaults. That’s because our paper money is no longer backed by gold or silver, and our coins don’t contain precious metal.
The U.S. government still holds millions of ounces of gold and silver, but citizens and foreign governments can no longer exchange their U.S. paper money for it. The government’s gold and silver are considered valuable assets rather than forms of money. Today’s coins and paper money are backed by the “full faith and credit” of the U.S. government.
If that makes you a little uneasy, try the following exercise. Put a ten-dollar bill and a blank piece of paper on a tabletop, and ask people to choose between the two. Chances are everyone will choose the ten-dollar bill. Why? After all, neither the ten-dollar bill nor the blank piece of paper is backed by gold or silver.
The difference is that people all over the United States will accept the ten-dollar bill as payment if you want to buy something. But you would have a hard time finding someone willing to ac-cept the blank piece of paper. That’s because the ten-dollar bill is backed by the promise of the United States government, and to most people, that promise is as good as gold.
WHY DO BANKS FAIL?
A bank is a business, and like other businesses, they can fail. Sometimes they fail because the people who run them make poor business decisions such as expanding too quickly or putting too much money into one type of loan.
Sometimes they fail because of fraud. Maybe the president makes questionable loans to friends or hires unqualified relatives and pays them huge salaries. But banks also go out of business because changing economic conditions make it difficult or impossible for borrowers to repay their loans. Here’s an example.
Gusher National Bank Slips on Falling Oil Prices
Falling energy prices mean cheaper gasoline and lower home heating bills. So, falling oil prices must be good, right?
Not for everyone! Take the case of Gusher National Bank. Gusher was very aggressive in making loans to oil and natural gas companies that had no problem repaying their loans when energy prices were high. The loans spelled big profits for Gusher, and everyone agreed that Gusher’s executives were smart business people who really knew how to make money.
Then the economy slowed down, and the demand for energy fell. Factories burned less oil and natural gas. Truck drivers, commuters, and vacationers drove fewer miles and burned less fuel. As a result, energy prices dropped sharply, and many energy companies fell behind on their loan payments. Some even stopped making payments altogether.
