September 5, 2008
Fifteen years ago, only a few million Americans carried debit cards. Today, more than 80 percent of us use them to withdraw cash, pay bills and make purchases at stores, restaurants and other merchants worldwide.
Not only are debit cards safer than carrying cash and more convenient than writing checks, they often offer better fraud and theft protection than either. But, like their credit card cousins, debit cards require careful oversight to ensure you don't overextend yourself – or risk security lapses.
How they work: Debit cards work similarly to checks, with transactions deducted directly from your checking account. You can use them to:
You can complete debit card transactions several different ways: Sign your receipt; place an order online, by phone or mail; enter a personal identification number (PIN); or simply swipe your card at select merchants that don''t require your signature.
Balancing and fees. Unlike credit cards, where the bank essentially loans you money until next month's statement, with debit cards the money is withdrawn directly from your account. Many people like using debit cards so they're not tempted to spend money they don't have.
However, with debit cards, if your account doesn't contain sufficient funds, the bank will either prevent the transaction (like bouncing a check) or cover the shortfall and charge you an overdraft fee. Overdrafts are costly – up to $35 per item – so to keep them in check:
Security measures. Most debit cards carry the same security protections as credit cards – especially when you sign for purchases versus entering a PIN, use your debit card online, or transact with merchants that don't require your signature (typically for purchases under $25). Some financial institutions may extend protections to PIN transactions, so ask yours about its policy.
It's important to check your monthly statements and online balances often and promptly report any unauthorized activities. If your card is lost or stolen, contact your financial institution immediately. This can reduce your liability if fraud losses occur.
A few additional safety precautions:
Debit cards can be a safe, easy payment alternative. Just be sure you take the same level of security precautions you would with cash, checks or credit cards.
Recent Practical Money Matters