Pay attention if you have a card that charges a fee for “PIN” transactions: savvy consumers can easily avoid paying a fee to swipe their prepaid debit card at the point-of-sale.
The point-of-sale signature strategy is a bit “under-the-radar.” I doubt that many of the financial advice websites will offer this tip. They will not because it only matters for consumers who use one of several prepaid debit cards that are currently available. Nonetheless, it is not something that takes much time.
The plan works because of how banks and payment processors run transactions at retail stores.
Point-of-sale payment terminals instruct cardholders to enter “debit” or “credit” when they swipe their card. Many people do not realize that the machine cannot detect the nature of your card. With a few exceptions (the newer terminals), most devices rely on the information you give to them to determine how the transaction goes through the payment rails.
If you have a prepaid debit card that charges you for a PIN transaction, then enter “credit.” Sometimes you will need to sign with a signature. Other times, if the transaction amount is low enough, the charge will be processed automatically.
You will know if your transaction is being run over the dedicated debit card rails if they ask for a PIN. If you get that far, then ask the cashier to cancel and then start over again. You want to be asked to make a signature.
Some readers may now feel skeptical. You might be asking “Isn’t it all the same? Why would a prepaid debit card account charge for one type of transaction but not for the other?”
It is not the same. It matters to the banks because the card networks (VISA, MC, AMEX, Discover) direct more in the way of fees when you use a signature for your purchase. The charge is known as “interchange.” Retailers pay interchange when you use a card to buy something. In exchange for interchange, they get to use the networks. Accepting credit and debit cards is worthwhile to retailers because they know they can sell more when they offer the ability to pay with a card. It is preferable to accepting a check because a certain percentage of checks bounce.