Credit & Money Management
The Downside of Debit Cards
Here is the fine print on debit cards that may make you think twice.
By Joan Goldwasser, Senior Reporter
From Kiplinger's Personal Finance magazine, November 2009
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Thanks to the credit crunch, many of us are mending our spendthrift ways by swiping a debit card to pay for that morning cup of coffee and other routine expenses. Last year, Americans used their debit cards 28.4 billion times (compared with 21 billion credit-card purchases) and spent a record $1.1 trillion, according to The Nilson Report, an industry newsletter.
But debit cards pose their own set of risks. If, for example, hackers get hold of your credit-card information, you are not liable for any unauthorized charges over $50. But if your debit-card number is stolen, the onus is on you.
You must report any misuse within two days to get the same $50 limited liability. Miss that deadline but report your loss within 60 days and you could be liable for up to $500. After 60 days, your liability is unlimited.
Visa and MasterCard advertise a zero-liability policy for unauthorized debit transactions, but it applies only to transactions processed by their networks. So if you sign for your purchase, you’re fine. But if you use a PIN, it could be processed by another network and the policy would not apply. Paul Stephens, director of policy and advocacy for the Privacy Rights Clearinghouse, recommends “getting away from using your debit card.” Rather, ask your bank to replace it with an ATM card, and take out cash to pay for small purchases.
Or use your credit card. If you’re afraid you’ll run up a balance, get a second card to make purchases you previously made with the debit card and pay off the new card each month. And to ensure you have enough in your account to pay the balance, use your checkbook register to deduct the amount of each transaction.
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Reader Comments (13)
Posted by: Tina at 10/07/2009 08:26:32 AM
Cardholder education is the key here. We need to focus on using signature and PIN appropriately and to pay attention to statments or online banking. There is no recourse if money withdrawn from the ATM is lost or stolen.
Posted by: Debit head at 10/07/2009 09:46:41 AM
What ridiculous advice. Use an ATM card and use CASH?! Your article mentions that liability goes up when you use your card outside the VISA/MC networks (i.e. PIN) - so why would you get a non-VISA or non-MC plastic that can only be used with a PIN using an ATM EFT network? All the liability increases you discuss in the article are then applied to any use of the ATM only debit card. If anything, stash the PIN in your sock drawer and use the signature side of your VISA or MC debit card. You'll have full protection of $0 liability, just like credit cards. It certainly provides a much better tracking mechanism than cash for heaven's sake! It also avoids racking up additional credit card debt that's too easy to make only the minimum payments.
Posted by: RuhRoh at 10/12/2009 06:22:29 PM
...Use a credit card instead of debit card? Not. Also, debit or credit is stolen, the onus is not on you. I have had charges taken off my debit card that were fraudulent. ALSO: when you use your debit card, you just punch in a pin. When you use a credit card, you give out all necessary information, including the silly card ID number on the back. I had a friend whose co-worker at a well known restaurant was caught using customer CC info for single purchases. Flew under the radar for a long time.
Posted by: Brian at 10/12/2009 08:14:57 PM
This is the most ridiculous article I've ever seen....
Posted by: Tricia R. at 10/13/2009 02:14:37 AM
I've been using a Debit card 25 years now and no bank has ever let me pay for something I did not authorize. It has happened many times using a few dif banks. (I think) this article is very bad financial advice.
Posted by: Anthony at 10/13/2009 03:41:01 PM
Why don't the banks make for an actual debit account? Checking/Saving/Debit. In this fashion people must transfer money on-line, at an ATM, or bank to their debit account. If the card is then lost or stolen their whole savings account is not at risk. It works fine in Australia. The only hangup in America I see is that people are lazy and won't want the hassle of having to transfer money to the debit account. They want someone else to protect, while not having to take measures to protect themselves.
Posted by: theserf8 at 10/13/2009 08:46:09 PM
This is the most absurd article i have ever seen...
Posted by: Ross at 10/14/2009 07:07:09 AM
This is crazy. Tempt people to go into credit card debt. This is really unsound advice. Run your bank card as Credit (sign instead of using the PIN). If you use it this way you will ALWAYS have Visa protection (with a Visa bank card). Don't take this poor advice and get a credit card just to make purchases instead of a debit card.
Posted by: Joan Goldwasser at 10/14/2009 12:22:07 PM
Hi, Joan Goldwasser here, author of this article. Please let me be clear: I'm not encouraging anyone to go into debt. I wanted to point out that you can incur fees and interest charges when you use a debit card. (Those overdraft fees can add up.) You have to pay attention to how much you are spending whether you use a debit or a credit card. You will not incur overdraft fees when you use your debit card responsibly. And you won't incur finance charges if you don't carry a balance on your credit card. Whichever card you use, you need to be disciplined and not spend more than you can afford. The point of the article was to warn unwary cardholders that debit cards can have significant costs if you are not careful. Hope this helps. Thanks for your comments.
Posted by: Greg at 10/14/2009 06:00:32 PM
Why not use cash? Using a debit card without a pin incurs a transaction fee to the store - can we all say increased prices. Using a pin might incur a fee from the bank. However, the cost is significantly lower. The proliferation of debit cards as a replacement for credit cards is basically a scam to consumers. Banks don't charge you to write a check. However, they charge you to use POS. Eventhough, it is cost effect for the bank to encourage their customer to use debit. Visa and MasterCard wants you to use the debit as a credit so they can pocket 2 to 5 % of the sale. Merchants have to make up the loss profits by raising prices. I'm sorry, but in my humble opinion, the banks are the new Mafia, skimming off the top.
Posted by: Kaesey at 10/14/2009 08:15:08 PM
Sure you can use your credit card. Just be ready for the interset fees to spike because they heard from your ex-roommates 3rd cousins aunt's therapist that you have a dog named Baxter and they don't like that name...
Posted by: Clarissa at 10/15/2009 10:24:56 AM
Really now? This is just trying to get people to use their credit cards instead of the money they already have. So what if after 2 days you are liable for more money. If you're not stupid you should know that you always check your balance and history every night, so it shouldn't be a problem in the least. You can also go through your bank to get protection for your card. And it's easier than going through the card sharks that only want your money.
Posted by: Robin in DC at 10/15/2009 02:01:34 PM
Some years ago, my bank (actually it was a credit union, which I vastly prefer) basically issued debit cards *instead* of ATM cards. It was to function as both. And for about ten years I've been using my debit card almost exclusively. I've rented cars with it, and I did not have to pay two erroneous $400 charges on it. Get a credit card if you need to establish credit, and keep track of your money like a grown-up. "You have to pay attention to how much you are spending whether you use a debit or a credit card."