Debit Cards

Do I Need a Debit Card?

By: Richie Bernardo, Personal Finance Reporter If you have both a credit card and an ATM card, then no, you don’t necessarily need a debit card, since you already have ways to pay with plastic and withdraw money from ATMs. Otherwise, yes, you need a debit card primarily for the following reasons:

• Convenience: Besides the ability to withdraw cash from an ATM, debit cards can cover purchases that can’t be paid with cash. For instance, hotels and rental car companies require a debit or credit card to make reservations online. Some airlines will only accept plastic for in-flight purchases. With a debit card, you can lighten your wallet and easily make purchases, withdraw cash or pay bills.
• Safety: The federal government insures deposits up to $250,000 per depositor, per financial institution in the unlikely event that the institution fails. In addition, debit cards are protected from fraud. And the fact that you’re limited to spending only the money in your checking account acts as a built-in safety net against uncontrollable spending habits.
• Overseas Travel: No foreign fee credit cards provide the most convenience, protection and savings for making purchases abroad. However, you may still need cash in a different country, and drawing cash advances against your credit card are way too costly. In that case, your best bet is to use a no foreign fee debit card and hit the ATM instead.

How Does a Debit Card Work?

By: Richie Bernardo, Personal Finance Reporter When you open a checking account, the debit card you receive will have three main functions:

• It doubles as an ATM card, so you won’t get a separate ATM card from your bank.
• It can be used for “debit” purchases at payment terminals that accept a PIN for authorization.
• Even though it’s not a credit card, it can be used for “credit” purchases anywhere that VISA or MasterCard is accepted (depending on the logo on the front of your card). To complete these purchases, you will need to sign the receipt like you would for a credit card purchase.

When you use your PIN for a debit card purchase, funds will typically be deducted from your checking account balance immediately. Making a “credit” purchase (i.e. you sign your name) puts a hold on your account for the anticipated amount and takes a day or two to clear. But don’t let the label “credit” confuse you. There is no credit extended to you. You are still limited to spending only the balance in your checking account. Once you deplete your balance, your transactions will be declined — or covered by your financial institution in exchange for an overdraft fee of between $27 and $34 — unless you’ve enrolled in an overdraft protection program, which tends to be a more cost-effective option of covering shortfalls in your checking account balance. Finally, details of every purchase and withdrawal will be included on your monthly account statement.

How Much Are Debit Card Fees?

By: Richie Bernardo, Personal Finance Reporter Most of the time, debit cards are free to use, as there is usually no direct cost associated with just having one. However, using a debit card can still trigger certain fees, including:

• ATM Withdrawal Fees — charged by your bank for using a non-network ATM
• ATM Owner Surcharges — charged by the owner of the ATM
• Overdraft Fees — if you spend more than your account balance
• Point-of-Sale Fees — charged by some banks for authorizing a transaction with your PIN instead of your signature

You can find a list of the most common debit card fees and rates on WalletHub’s Banking Landscape Report. Prepaid cards and gift cards have their own fees and costs, which vary by offer.

Are Debit Cards Protected from Fraud?

By: Richie Bernardo, Personal Finance Reporter Yes, they are but it depends on whether you use your PIN or signature to authorize a transaction:

• For “credit,” or signature, purchases, you receive $0 liability protection on all networks.
• For “debit,” or PIN, purchases, protection depends on the credit card network. But under federal law, if you report within two days, you’ll be liable for a maximum of $50; more than two days but less than 60 days, $500; after 60 days, you may not be able to recover any of the funds that were lost.

There is one other important distinction between credit and debit cards: If someone makes a fraudulent charge on your credit card, it reduces your available balance while you’re disputing but doesn’t immediately take money out of your pocket. There’s extra risk from your debit card because a fraudulent charge takes money out of your checking account immediately.

What Is the Difference Between a Debit Card and a Credit Card?

By: Richie Bernardo, Personal Finance Reporter Debit cards and credit cards look the same, but they function a bit differently: WalletHub’s Credit vs. Debit guide offers more information on the distinctions between the two types of cards.

What Is the Difference Between a Debit Card and a Prepaid Card?

By: Richie Bernardo, Personal Finance Reporter Prepaid cards are essentially debit cards that aren’t tied to a checking account. However, as is the case with credit cards, they match in appearance but differ in functionality. With a debit card, you can opt to exceed your account balance in exchange for overdraft fees or overdraft protection charges. With a prepaid card, you can only spend what’s loaded on the card but won’t incur overdraft fees. Additionally, prepaid cards come with guaranteed approval. With debit cards, you first need to apply for a checking account, which requires checking your banking history.

Tips for Using a Debit Card

By: Richie Bernardo, Personal Finance Reporter Debit cards are useful pieces of plastic, but they require responsible consumer behavior on your part. Follow the tips below to avoid potential problems with your debit card such as incurring hefty fees.

• Reject Your Financial Institution’s Offer to Cover Overdrafts: Your bank may give you the option to use your debit card even when you don’t have enough funds in your account for the purchase or withdrawal. You should decline this very expensive form of credit. Instead, when your balance is too low for a purchase or withdrawal, your card will simply be declined at the cash register or ATM, and you’ll save between $27 and $34 in overdraft fees each time.
• Keep Your PIN Private: You should never write your PIN on your debit card. Don’t choose a PIN associated with your identity, either, (e.g., your birth year or last four digits of your Social Security number), which is easy for thieves to guess if they gain access to other personal information.
• Avoid Using Your Debit Card Online: Although debit cards offer the convenience of paying for purchases or bills online, you may have a harder time recovering your money if you become a victim of identity theft. We recommend using a credit card instead, which allows you to spot unauthorized activity on your statement before you have to pay the balance.
• Set Up Account Alerts: Signing up for text or email alerts that warn you when your account balance is low can save you up to $34 on each overdraft. With this simple preventive measure, you can deposit money right away or pay for a purchase with other means if you don’t have overdraft protection.
• Choose “Credit,” Not “Debit” When Given a Choice: When you pay for a purchase at the cash register, the clerk will often ask you if you prefer to pay with “credit or debit.” If your bank charges fees for PIN purchases, you can avoid the fee by choosing “credit” instead. Choosing “credit” also gives you a higher level of fraud protection. And if your debit card earns rewards, you may only get them with signature-based transactions.
• Use a Credit Card for Rentals, Hotels & Gas: Rental car companies and hotels usually place a hold on plastic when making a reservation to make sure you’ll have enough money to cover the price of the rental or room. Gas stations do the same when you pay for fuel. They will only release the hold after several days or once you’ve settled your bill. If you use your debit card for these transactions, your actual money will be frozen for the duration of the hold, which means less disposable funds. For this reason, we recommend using a credit card instead, unless you’re near your limit.