Debit Cards

Debit Cards are Beginning to Replace Cash

Debit cards can look a like lot a credit card and even carry a Mastercard or Visa logo. Or it can be a simply a card issued by your bank to allow you to use its Automatic Teller Machine (ATM). While in some cases, merchants will allow you to use bank debit cards, just like credit cards, when paying for purchases in their stores, there are important differences between the two.

Although your debit card can look like a credit card, it is more akin to a check or even cash. When you withdraw money or pay for something using a debit card, your bank account will be debited – the money will be withdrawn – within minutes to a few hours. (When using you debit card as a charge card, in other words, in circumstances where you sign a charge slip rather than enter your PIN code into a machine, the debit may take a few days to reach you account.)

There are obviously no grace periods when you use a debit card, nor can your withdrawals exceed the amount you have on deposit. Also you won't get any travel rewards or cash back when using a debit card.

Debit Card Advantages

There are some advantages to debit cards. There are lots places that accept debit cards, even for small purchases.

The time will come shortly - as it has already in Asia – where all you will have to do is waive a debit or credit card in front of vending machines in order to make purchases. As cash becomes obsolete, debit cards will replace it.

Most fast food restaurants, supermarkets and gas stations already accept them. And just about every debit card issuer belongs to one of the major processing networks, so will be able to use your card in just about any ATM machine at home or abroad.

You’ll probably find more merchants that will accept debit cards than will accept checks, especially if you are from out of state.

However, you might find merchants that will accept credit cards, but not debit cards. For example, car rental companies may not accept debit cards as a deposit or payment for a car rental; or instead of putting a “hold” on your credit, which they do with credit cards, they make actually withdraw funds, leaving you short if you had not made provisions for that happening.

When you use your debit card, you don’t need to show identification, like you would with a check, although you’ll have to enter a pass code – your PIN - in order to complete the transaction. If you don’t like writing checks or carrying cash, a debit card is a good substitute.

When you need cash, especially if you are traveling out of the country, a debit card is a blessing. You can obtain local currency at wholesale conversion rates, paying only the usual one or two dollar fee your bank charges for a debit transaction.

If you use a credit card for this purpose, you are taking a cash advance, which has no grace period, carries fees of 1% to 3% of the amount withdrawn plus the ATM fee and you'll usually pay a higher interest rate than if you had made a purchase.

But purchases made with debit cards don’t come with the protections you get with a credit card. For example, you can't ask for a “charge back” if the merchant refuses to replace defective goods or services.

Unless you have overdraft protection on the account linked to the debit card, you can only spend what you have on deposit – not necessarily a bad thing.

Banks have begun to load up on ATM fees. It used to be you would pay your bank a dollar or so per ATM transaton. Now the fees have gone up and, if you aren’t using one of your own bank’s ATM machines, the other bank will pile on their own fees.

Debit Card Precautions

If your debit card is lost or stolen, or your PIN number has been compromised, notify your bank immediately.

Government regulations require banks to set a maximum liability of $50 if a debit card is reported lost or stolen within two days of discovery.

Liability increases to $500 if the lost or stolen debit card is reported within 60 days.

If you fail to notify the bank of the theft within 60 days after a bank statement showing fraudulent use of the debit card is sent to you, you could lose everything in your checking and overdraft accounts.

Some banks offer better protection than that required by law, including "zero liability" in cases of fraud, theft, or other unauthorized card usage, if reported within two business days after discovery. After the two-day period, your liability is capped at $50.

Other banks will limit your liability to a flat $50.

Banks have up to 20 days to provide a provisional credit for losses due to debit card theft or unauthorized use of the card. Some banks promise to replace your funds faster - within 5 days of notification.

The first time you learn your card has been lost or stolen might only be when your own checks start to bounce or you can’t withdraw any funds from your account. The bank is not responsible for returned check charges or credit card late fees due to loss or theft of your debit card, but some banks will offer this protection or make refunds for these fees if you ask.

Guard your card and your PIN. Read more about how thieves can steal this information read Identity Theft or by checking out this recent MSNBC report.

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