Credit card debt is really hard for many people to get a handle on, so instead they use their debit card where it automatically draws money out of their account and no bill is required. Another reason many people use debit cards is because they automatically assume that the safety and security of their identity is safer on a credit card. However, this may not always be the case. Debit card use continues to grow and soon may even surpass the use of credit cards.
According to The Nilson Report, an industry publication, debit purchases are expected to rise 13% for 2008, bringing the total to around $1.2 trillion. However, credit cards are only expected to rise about 3% to around $1.9 trillion.
Like your credit cards, debit cards need to be treated extremely carefully.
Portable Skimmer
This device allows thieves to clone your debit card taking all of your account information and security codes and passwords. The thing is, that if someone uses a skimmer on your debit card, you may not even realize until several charges have already been made. Whenever your card is out of your sight (i.e. paying for dinner at a restaurant), someone else has the ability to steal your card information. Granted, this does not happen to everyone, but anyone is susceptible.
Reimbursement
Many people assume that a debit card works just like a credit card and if their money and identity is stolen they have a grace period where they are often able to get the money back. However, this is not the case. With debit cards your money is drawn directly from your account and is gone. Banks often deal with debit cards and credit cards completely separately and do not reimburse people for identity theft. Obviously reimbursements depend on your bank and the situation, but just make sure you are clear on the guidelines and how things work with your card before you assume you are going to get your money back if something happens.
Hidden Fees
Every card is different, but some banks charge you for every time you make a debit purchase on your card (meaning that you use your card by entering a pin instead of signing it like a credit card). If you have a choice you should always choose credit (even if you are using a debit card). The reason for this is that some banks charge service fees every time you enter your pin at a store or gas station. The fee may only be $1.50, but think how quickly this can add up. Overdraft fees are another thing you need to look out for as well as ATM fees. If you withdraw money from an ATM that is not your bank, you will get charged by both the bank that owns the ATM and your bank on top of that. As much as you can, use your own banks ATMs to be safe.
Holds
Holds are often done in the travel and hospitality industry. These types of companies want to make sure that they are going to get paid by you so they put a hold on your debit card. This can also be done with rental car companies because they want to ensure the safe return of the car. Companies can hold hundreds of dollars on your account without you realizing. When you do make a purchase, because all of your money is being held you might overdraw from your account and then end up paying fees for this as well. Make sure you keep track of your card, especially if you are spending a lot on a trip, etc. It might be best to put these types of purchases on your credit card and just pay it off right away with the money that is in your debit account. If you were going to put it on your debit card anyway, then using a credit card and paying it off right away shouldn’t make a difference.
Avoid the Internet
If you do not know the retailer, it is best not to use your debit card for online purchases. Again, you won’t be reimbursed for money that you might lose if your purchase never arrives. It is always better to be safe than sorry. Online purchases are typically more risky than purchasing in a store. You don’t want to increase the risk by using your debit card.
The best thing to do is to be aware of your debit card account and transactions that are on it as much as you possibly can. You don’t want your paper bill to arrive in the mail and realize that you have overdrawn your account by a significant amount of money. Also, only use your card at locations where you feel your information is safe. You may not always be able to tell and things do happen, you just want to be prepared.
Photo: Belén
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Further Reading
Tags: Automated teller machine, Bank, Credit card, Debit card, identity theft, Overdraft, Theft
November 7th, 2008 at 12:57 pm
I don't even have debit cards for my regular accounts. In fact the only debit card I now have is for my ING account which I only use during the time they offer the cash back for purchases.
I recently used the card to send money via moneygram because ordinarily I would have to transfer the money from my ING account over to a regular bank and then withdraw it then walk over to the moneygram place to send the money. Now I just swipe my debit card on the day I need to send the money, and don't lose the interest on the days that the transfer would have taken.