This whole checking account / savings account, credit card/ debit card system that Americans have to deal with is so cumbersome and backwards.
For Europeans that don't know: Most Americans have (at least) those two accounts, and those two cards. They usually spend from their checking account with their credit card, and save on the savings account. When they spend on their credit card, they sometimes "earn" points, depending on what agreement their bank has with the major retailers. Salary is inserted on the checking account. Some people still receive salary on old fashioned paper checks. Some people still pay in stores using paper checks. Almost everyone, has a lot of paper dollars in their wallet since there are plenty of places in which you need it. Now, on regular intervals, for example at the end of the month, Americans then transfer money from their savings account to their checking account if the salary is not enough to cover. If they forget, they pay high interests and fees. Generally speaking, it's a hassle to transfer money to people you know and fees are hefty. When you use your credit card, no pin code is usually needed. There are regularly issues with your credit card being abused.
In the three European countries I have lived in, people have one account, and one card. Depending on your agreement with the bank, it can dip into negative (in which case you pay some interest, but usually not much). If it dips below the agreed max, let's say minus EUR 5,000, then you can't withdraw more until you receive your salary or until you insert money otherwise. People have one card attached to that card. When the balance on the account is positive, it is essentially a debit card. When the balance on the account is negative, it's a credit card. Usually, no points are earned on any spending. In most of Europe, you use your pin code if you use your credit card. Where in America, you regularly spend time on the phone talking to robots and objecting to expenditures you didn't make, that's almost never the case in Europe. People transfer electronically without any fees from account to account. If you go out, and your friend pays dinner, you can transfer your half directly from your smart phone using just his phone number (so essentially just using the contacts on your phone). You don't need Apple or Google pay or similar. It's your bank's app. No fee is charged.
Credit and Debit cards are different things. Debit cards are the European style 'put in a pin and money is debited directly from your bank checking account'.
Credit cards are a revolving line of credit from a bank - you're spending against the LOC, and settle up on a monthly basis (to some extent - there's interest and pay-over-time involved in most as well).
The difference in accounts: banks offer substantially higher (although, basically still really low due to todays market) interest on money sitting in savings accounts, and restrict the use and availability of that money. Banks backed by the Federal reserve have to maintain a minimum ratio of deposited money to loans, and these restrictions/incentives are how they keep those in line and stay legal.
And for what it's worth, 99% of my spending is on a credit card, which I pay off monthly. I can't remember the last time I used cash or paper checks.
We also have many different ways to transfer money around, etc. using apps and things.
The main difference is that if someone steals your debit card info and goes on a spending spree, that money is gone from your account until the fraud folks at your bank can deal with it.
This may result in overdrafts from other automatic payments or not being able to pay for things you need, until the money is restored to your account.
I used a debit card to pay for dinner. Merchant accidentally charged me 15 times.
Noticed the next day - called bank. '7-10 business days to resolve', or I could go get the merchant to refund it (which I did immediately).
That money came directly out of my checking account, and was 'gone', functionally until I got them to credit it back.
Same thing happens on my credit card: the credit card company floats the missing cash for at least 30 days, at no loss to me while it 'gets worked out'.
And that's with everybody (merchant, bank, etc.) agreeing it was an accident. If it was actually fraudulent, I dunno how long it'd take...
Similar experience here. Now I exclusively use credit cards for all purchases, my debit card is only for pulling cash out of a machine or sometimes grocery purchases where I am going to get cash back. Better to have the banks money on the line than mine.
In addition to what the other commenter said, I think in practice, doing a chargeback is a lot less painful than calling you your bank and asking for your money back. Of course definitely depends on bank and credit card issuer.
I'm not trying to defend the warts of the US banking system, but...
"Credit card" would be a third account that is purely debt-based. It's optional, and you can spend directly from your checking account with a "Debit card" instead. It's just not advisable, due to the broken-ass card system you described.
"Savings account" is optional, but earns interest. Does your single EU account earn reasonable interest? Long term deposit ("CD" and "Term Share") rates are currently around 3%, with savings paying 2%.
Combining checking and savings accounts can be done in the US in 2018. The 3 major online banks all allow you to setup an automatic "overdraft transfer", so you can deposit into your savings account, spend out of the checking, and have money automatically move between them. The remaining caveat is that you're limited to six of those movements from the savings per statement, which makes aggregating small transactions on a credit card handy.
I expect the caveat with this Robinhood offering will be a cap on the balance that earns 3%. You can find plenty of checking accounts with high nameplate interest (search for Kasasa), but they all demand some level of ongoing mindshare activity [0] and limit the amount they'll actually pay out, rather than functioning as true savings/moneymarket.
[0] Usually a certain number of debit card transactions per month, to better feed the surveillance databases.
I would rather not live under an inflationary regime where one needs to continually seek returns just to tread water, but since I don't have a choice about that I'd rather somewhat keep up. Especially for sums that end up in liquid accounts "temporarily" and then drag out longer than expected.
And Canada has another slightly in between device that's super useful and mostly inaccessible in the US.
Going negative in an easy to transact, straightforward pay-for-amount-and-duration-of-debt from your bank has no US equivalents.
Having an unsecured line of credit along with your checking account is extremely convenient if you generally try to invest your savings and very occasionally need to go under temporarily.
It's not like a credit card. The super multi-faceted it-can-very-conditionally-be-used-to-consolidate-cash-debts-with-low-introductory-APR-but-is-also-a-purchase-transactional-tool-with-a-grace-period-except-when-you-break-it-then-you-get-20%-APR-and-get-charged-retroactive-debt-from-the-time-of-transaction-plus-all-your-subsequent-transations-all-have-no-grace-periods-until-you-do-something-magical-to-reset-the-state-of-your-account-and-all-that-except-when-you-do-any-cash-advances-in-which-case-all-bets-are-off is unexplainable and uncalculatable for normal people.
It's not like a loan because loans need paperwork and issuing per instance per purpose. And each time you use it triggers effects on your credit score. A line of credit is always there and free if you don't use it and you can use it on a whim for any arbitrary reasons.
It's not like taking money out of your investments because liquidating assets and possibly transferring between your brokerage and banking accounts can take a week. A line of credit can be cash in your checking account in milliseconds.
Edit: correction, it's not really inaccessible in the US, just a fringe product with 12% APR and other catches like no debt monthly fees vs 5% and no catch in Canada.
Charles Schwab Bank[1] has something similar called an "Overdraft Line of Credit". You can overdraw your checking account, up to the line of credit amount (which can be as high as $10,000). There are no overdraft fees. You just pay a relatively-high interest, which for me is 13.99%. Nothing else. No catches, no hidden fees or surcharges.
No other U.S. bank that I'm aware of offers this feature. This feature is fairly hidden on their website. I read about it somewhere, and asked about it through their chat. The gave me a link to a PDF application form. I had to print out the PDF, fill it out with a pen, and mail it out (you can't apply online). I was approved a week or two later.
[1] It's the Bank that offers this -- not the brokerage service of Charles Schwab. There's a second overdraft service offered through Charles Schwab itself -- this overdraft service is a margin loan secured by equities in your brokerage account. You can actually combine both overdraft services. The Schwab Bank Overdraft Line of Credit application form asks which type of overdraft line of credit to use first.
"Generally speaking, it's a hassle to transfer money to people you know and fees are hefty."
This hasn't really been true for a long time. Most banks participate in Zelle, which lets you transfer money for free to just about anyone via your phone. Every national or regional bank I can think of is a member. Venmo also does this.
"in America, you regularly spend time on the phone talking to robots and objecting to expenditures you didn't make"
Regularly? I am a heavy credit card user and I've had a card compromised once about 10 years ago. I talked to a human at the bank to clear it up and they had a new card in my mailbox the next day.
The whole "points" thing is an oddity, I'll grant. But we're used to it and it's highly advantageous to the consumer if you pay off your cards every month. It's worth about $1000 per year to me.
One point of your depiction of the US system I haven't seen other replies address: You can easily and for no fees (though not quickly) transfer money to other people with paper checks. That's the main reason they are used these days. I haven't seen anyone (try to) pay using a paper check at a store in years. Most banks allow for electronic deposits of checks with smartphones so it's not even that inconvenient. Not to say this is an ideal state of affairs (checks can take days to clear and not everyone has access to accounts that can write paper checks) but it's not quite as dire as you portray it.
Europe doesn't have credit cards, it's all debit cards. And I see a US system much more advantageous than in Europe. In many European countries cards aren't as widely accepted as in US.
What? Generalizations about Europe always seem to fail. Credit cards are widely used in Europe. In some European countries cash is starting be used rarely and payment is mostly done with a card or a phone.
One might argue that one benefit of the European system is that credit card processing fees imposed on the retailers are regulated, which ultimately causes credit card "points" to be uncommon. This in turn makes life simpler because there is no need to game the credit card benefits system. You can, however, get up to 0.5% cash back at least where I live.
I can confirm that credit cards are not used by a majority of people in France. Debit cards are the norm.
Credit cards are mostly used by businesses but individuals rarely have them as they are hard to get in the first place.
In France, it is also customary to use your checking account with an allowed overdraft amount.
That means you can end up with a balance of -500 euros but do not have to pay fees unless you go over this agreed amount.
This amount is negotiated with the bank when you open your account and can vary depending on your monthly salary.
Unlike a credit card though where you can spend as long as you have money left on your card, the bank can cancel your overdraft and ask you to reimburse the money at any time.
You do not earn points with the overdraft and contrary the Credit card system where having a credit card and spending some money actually increases your credit rating so long as you pay the money back in time, using your overdraft is considered a bad thing by most banks.
They are still going to give you the overdraft because if you go over the agreed amount then the fees become staggering.
I'm sorry, but your post is completely wrong. If this was an essay on American retail banking, you'd receive an F.
> Most Americans have (at least) those two accounts, and those two cards. They usually spend from their checking account with their credit card, and save on the savings account.
This is not true. A), most Americans do not have two accounts. The card used on your checking account is a debit card, and it does not allow you to have a negative balance without incurring a penalty fee. A credit card is a completely separate instrument that allows you to spend from $0 to -$<credit limit> with the understanding that
> When they spend on their credit card, they sometimes "earn" points, depending on what agreement their bank has with the major retailers.
This, broadly speaking, is not true. The bank rarely, if ever, has any direct dealings with the retailers. This is mostly done through the payment network (Visa, MasterCard, etc., which Europe has as well).
> Salary is inserted on the checking account. Some people still receive salary on old fashioned paper checks. Some people still pay in stores using paper checks. Almost everyone, has a lot of paper dollars in their wallet since there are plenty of places in which you need it.
This is not true. Income is deposited wherever you indicated to your employer. This can be separated between savings accounts, retirement accounts, checking accounts, investment accounts, or even deposited directly to prepaid cards. Check paying is exceptionally rare among people under 50 (except for some holdouts, like apartment complexes), and virtually nobody carries wads of paper dollars around anymore. Many trendier stores in cities are now 100% cash free and do not handle paper money at all. Checks might still be issued, but most banks offer instantaneous deposit via smartphone.
> Now, on regular intervals, for example at the end of the month, Americans then transfer money from their savings account to their checking account if the salary is not enough to cover. If they forget, they pay high interests and fees.
This isn't true. For one, the only reason to transfer money from your savings account to your checking account is if you need to make a purchase with your saved funds, i.e. you've spent in excess of your means for that month. The purpose of a savings account is... to save. The idea is the number of withdrawals from the savings account are limited (by law). In return, the bank can offer you higher interest on your deposits because the money is less mobile. In the past, these interest rates were decent (over 4% APY was not uncommon). Since the financial crisis, savings accounts from major banks have offered insulting low rates (in some cases 0.05%).
You pay fees for drawing a negative balance in your checking account. Every bank now has the ability to link both savings and credit accounts to automatically cover these "overdrafts" automatically, with no user input.
> Generally speaking, it's a hassle to transfer money to people you know and fees are hefty. When you use your credit card, no pin code is usually needed. There are regularly issues with your credit card being abused.
This is somewhat true, but most banks are good at catching fraud before it becomes an issue for the customer. Europe, I might add, is not immune to credit card fraud despite using PIN codes for credit transactions. Debit transactions in the US commonly require a PIN code and have for decades, however this PIN code is not attached to the card chip like on European cards.
Beyond this, it isn't like Europe is some alien planet. There are definitely countries in Europe which offer the Checking/Savings/Credit structure.
> Income is deposited wherever you indicated to your employer. This can be separated between savings accounts, retirement accounts, checking accounts, investment accounts, or even deposited directly to prepaid cards.
As an American, I agree with all of the corrections in your comment except for this one.
I'm willing to accept that your employment history is different than mine but I've never had an employer that supported this and I'd be really surprised if most Americans did.
My employers have given me a choice: paper paycheck or direct deposit of the full amount. Full stop.
That's odd. I've always had the option for partial direct deposit (redirect a fixed $ amount or redirect a fixed % from each check to different accounts). Even my college job at a café had that option (to be fair, the checks were from the state comptroller's office, so the same system used to pay all state employees).
My last employer even let me choose if I wanted monthly, bimonthly, or biweekly paychecks.
[Edit: I shouldn't say that it's odd. It just runs counter to my experiences is all.]
What is your experience like? I live in NYC and I find that comment to match my experience today. The only thing missing is that some (perhaps many, but certainly not all) people use one or more of Venmo, Square Cash, Zelle, or Apple Pay to send money from person to person, but default to cash or checks if they don't have a service in common.
For Europeans that don't know: Most Americans have (at least) those two accounts, and those two cards. They usually spend from their checking account with their credit card, and save on the savings account. When they spend on their credit card, they sometimes "earn" points, depending on what agreement their bank has with the major retailers. Salary is inserted on the checking account. Some people still receive salary on old fashioned paper checks. Some people still pay in stores using paper checks. Almost everyone, has a lot of paper dollars in their wallet since there are plenty of places in which you need it. Now, on regular intervals, for example at the end of the month, Americans then transfer money from their savings account to their checking account if the salary is not enough to cover. If they forget, they pay high interests and fees. Generally speaking, it's a hassle to transfer money to people you know and fees are hefty. When you use your credit card, no pin code is usually needed. There are regularly issues with your credit card being abused.
In the three European countries I have lived in, people have one account, and one card. Depending on your agreement with the bank, it can dip into negative (in which case you pay some interest, but usually not much). If it dips below the agreed max, let's say minus EUR 5,000, then you can't withdraw more until you receive your salary or until you insert money otherwise. People have one card attached to that card. When the balance on the account is positive, it is essentially a debit card. When the balance on the account is negative, it's a credit card. Usually, no points are earned on any spending. In most of Europe, you use your pin code if you use your credit card. Where in America, you regularly spend time on the phone talking to robots and objecting to expenditures you didn't make, that's almost never the case in Europe. People transfer electronically without any fees from account to account. If you go out, and your friend pays dinner, you can transfer your half directly from your smart phone using just his phone number (so essentially just using the contacts on your phone). You don't need Apple or Google pay or similar. It's your bank's app. No fee is charged.