With most people’s personal finances still in a bit of a difficult spot, it is no real surprise that the interest in using credit has declined. In fact, many people are turning to debit cards, vowing to use their checking accounts rather than their credit cards. For the most part, this is a desirable change. It is much better to focus on using money that you already have, rather than money that is, in fact, a loan. However, debit cards do come with their own risks, just as any financial tool, from online banking to credit cards, does. Here are some things to be aware of when you are using a debit card:
- Watch out for overdraft fees: The convenience of plastic is writ large for debit cards. However, that can lead overdraft fees. The per-transaction cost for going your limit can be quite hefty. Remember that you need to keep track of that coffee you buy in the morning, or when you swipe your debit card to pay for your lunch.
- Understand liability protection rules: You also need to understand that liability protection for debit cards is not that same as it is for credit cards. Kiplinger points this out about “zero liability” policies for debit cards: “Visa and MasterCard advertise a zero-liability policy for unauthorized debit transactions, but it applies only to transactions processed by their networks. So if you sign for your purchase, you’re fine. But if you use a PIN, it could be processed by another network and the policy would not apply.”
- Holds on your checking account: Some merchants (gas stations and hotels are notorious for this) will place a hold on some of the money in your account when you pay with debit card. You may be getting $20 in gas, but the filling station may hold $100 of your checking account money until the transaction truly clears. This can cause problems later in the day.
In the end, it is important to keep track of the purchases you are making with your debit card, and to be sure that you always have a buffer in your checking account. Also, consider using the credit or a third-party payment processor like PayPal when you are making purchases online. That will provide you with a little more protection.