Debit Cards vs. Credit Cards

Debit Cards versus Credit Cards

A debit card is an ATM card with a Visa or MasterCard logo on it.  What is the difference from a credit card?  Debit cards are riskier than password protected (PIN –only) old fashioned ATM cards because debit cards can be used with a PIN OR can be used with only a signature, without a secret PIN or password, just like a credit card, over the phone or in a store.

Legally, your ultimate liability for fraudulent use of a credit card is generally only $50.  When a credit card is fraudulently used, you are also only disputing whether you owe the bank money.

Unlike a credit card, if your debit card is used fraudulently, the thief robs your checking account.  Potentially, all your money is drained out of your checking account.  It could take the bank 10 days or more to investigate and refund your money.  In the meantime – you could bounce checks to your landlord, credit card company, or mortgage company.

Unlike a credit card, under the law, your debit card liability could be as much as $500, if you notify the bank more than 48 hours after you learn of the problem – or even up to all the money in your checking account plus your maximum overdraft line of credit if you fail to notify the bank within 60 days.

To protect yourself only use a credit card for internet transactions.  In addition to greater liability protection with a credit card, you have greater legal protection if goods are defective or don’t arrive.  The Fair Credit Billing Act only applies to credit cards.

Use a debit card only with merchants that you trust.  It is also a good idea to never let it leave your sight – skimmers can be used to copy your information by waiters once they leave the table with your card.

Debit cards make banks a lot of money.  When you use the card like a credit card (with a signature, but not with a PIN) banks take a fee from the merchant.  When you use it with a PIN, like an ATM card, some banks charge you a transaction fee (called a POS fee) of .25 – $1.00.  Other banks charge a monthly card rental fee plus transaction fees.  Find out what your bank charges so you don’t wind up with large fees each month.

Blocking is another problem with debit cards.  Some hotels, gas stations, and rent a car companies routinely block a card in advance for the estimated cost of a transaction that may not be completed for several days.  It isn’t a problem for most credit card customers, unless they are near their account limits.  But if you are close to your checking account limit – much more common than being close to a credit card limit – you could end up bouncing checks or be refused transactions by other merchants due to faulty blocks.


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