Many consumers choose debit cards over credit cards because they trust them. Unfortunately, just because your debit card is backed with cash, doesn’t mean you can let your guard down. Below is a list of dangers to watch out for when using your debit card, and some steps you can take to avoid them.
Direct vs. Deferred and Hidden Fees
There are two kinds of debit cards: direct and deferred. Direct debit cards require PINs (personal identification numbers) to authorize immediate withdrawals and purchases. Deferred credit cards act like credit cards, but without the line of credit. They require signatures for authorizations, and unlike direct credit cards, money is debited from the account within two to three days. Many cards allow users to switch between direct and deferred purchases.
While direct vs. deferred may seem like a minor difference for the account holder, it makes a big difference for retailers. PIN purchases typically charge a retailer about 20 cents, while deferred debit cards charge retailers a percentage of the purchase, up to 2.5%. For this reason many retailers, including Wal-Mart, refuse to accept deferred debit cards.
As a result of these bans, banks have lost approximately $3.5 billion dollars in processing fees. To regain their footing, many banks have begun charging consumer fees of $.25 to $1.50 for PIN purchases. A recent study found that 47% of 31 New York banks charged debit fees to their customers without any warning.
What you can do: Study your bank statement for any hidden debit fees added on to your purchases. If your bank is charging you for using your PIN, charge your purchases as “credit,” when prompted by the retailer.
Lost or Stolen Cards
Before you sign up for a debit card, you’ll want to do some research on each card’s liability cap. Credit cards usually institute $50 liability caps, which leave you responsible for up to $50 in credit card losses. Unfortunately, debit cards can have up to $500 liability caps.
Credit cards also allow you to withhold payments when you have disputes, debit cards do not allow you this freedom.
What you can do: For less secure transactions, such as online or over-the-phone purchases, choose your credit card over your debit card for maximum security. If your card is lost or stolen, report it immediately. Choose Visa if you have a tendency to leave your card at the bar; Visa provides excellent customer service and fully reclaims losses reported within two business days.
Many debit card users believe that since their cards are backed with money, it is impossible to overdraw. When using a deferred debit card or signing your debit card as credit, your debit card will allow you to exceed your checking balance. Just like a credit card, the bank will then slap you an overdraft fee, typically around $30 for each transaction.
What you can do: Be sure to track your debit card carefully, as if it were a credit card or check book. If you are worried about over drafting, be especially careful not to use your card in its deferred mode.