Blog sponsored by Bankrupt-Law.com



Understanding Debit Cards
Janet uses her bank debit card for almost all her monthly purchases. Asked
why she doesn't just pay with cash, she says that she prefers the
convenience of a debit card. "It's safer than carrying cash or a credit
card. And you don't have a huge bill to pay at the end of the month."
"I like the pay-as-you-go concept where you only spend what you have rather
than borrowing" as you would with a credit card, she adds. And of course, if
you don't pay off your credit card completely each month, "there are the
hefty credit charges." They can run 9 percent to 20 percent.
If you want the convenience of a credit card, but don't want interest
payments or a large bill to pay off monthly, then a debit card may be the
answer for you, too. Debit cards work like cash or a personal check. The
money you "charge" is automatically deducted from your bank account.
Yet, debit cards don't have the same protections from unauthorized use as
credit cards.
Debit Card or Credit Card?
What's the difference between a debit card and a credit card?
While a debit card looks like a credit card, it works like cash or a
personal check. You "pay now." With a credit card, you "pay later."
Debit means "subtract." When you use a debit card, you subtract money from
your own checking or savings account. As with credit cards, you use it in
stores for purchases. At check-out, the card reader electronically contacts
your bank and subtracts the amount from your account. The money you have in
your bank account limits how much you can spend.
Using a credit card is somewhat like taking out a loan from a bank or other
financial institution. You have to pay back the credit you used each month.
If you pay back less than the full amount you owe each month, you pay
interest on the amount you don't pay back. The credit card company sets the
total amount you can charge based on your credit history, income, debts and
ability to pay.
Some cards are dual-purpose credit/debit cards. Before you swipe the card
through the reader, you select a "credit" or "debit" button on the reader.
If you select "debit," you then enter your Personal Identification Number
(PIN).
If you select "credit," you are given a credit receipt to sign. "Credit"
charges will appear on your next charge account bill.
What are the advantages of a debit card?
It is often easier to get than a credit card.
You don't have to get your check approved or show identification at stores.
You don't have to carry cash, a checkbook or traveler's checks.
Debit cards are more readily accepted than checks, especially when you are
traveling.
You don't pay interest charges.
Because checkout lines move faster, storeowners like debit cards. They don't
worry about bounced checks or take checks or cash to the bank. Debit card
processing fees for the merchant are generally lower than credit card fees.
What are the disadvantages of a debit card?
You need enough money in your bank account to cover each purchase.
Since you paid for the purchase at checkout and the money is out of your
account, you have less protection if something goes wrong with the purchase.
Your bank won't put money back into your account for items that are never
delivered, don't work or were misrepresented.
You may have bank fees - such as monthly service charges, per-transaction
costs or penalties - for dropping below your required minimum balance. Check
with your bank to find out those extra costs.
Protecting Your Debit Card
A debit card is like a blank check, so you need to guard the card and the
account number carefully against loss or misuse. A thief can clear out your
bank account before you even know your card is missing.
If your card is lost or stolen, or if you think someone is using it
fraudulently, call your bank immediately. Follow the phone call with a
letter.
Thieves don't even need your card. As long as they have your name and card
number, they can order goods by mail or over the telephone. They can wipe
out your bank account before you know the card is missing, or even when you
still have the card in your pocket. Protect your debit card by holding on to
your debit card receipts and check them against your bank statement each
month.
Memorize your PIN but don't keep it with your card. Don't choose one that a
smart thief could figure out, like your phone number, address, birthday or
part of your Social Security number. Never give your PIN to anyone.
What if your debit card is lost, stolen or misused?
You must act quickly. The most you can lose is $50 if you report to the bank
or credit union that your card is lost or stolen within two days of when you
discover the loss. However, your liability increases to a maximum of $500 if
you report within 60 days after you receive your bank statement.
If you don't to notify your bank within 60 days after you receive your bank
statement, your liability is unlimited. You could lose all the money in your
account. Check your bank statements carefully and promptly for charges you
didn't make.
Some major debit card issuers provide more protection. Some state laws cap
your total loss at $50.
AARP Resources
Give Yourself Credit
http://www.aarp.org/consumerprotect-credit/Articles/a2002-08-14-ManagingMoneyGetCredit.html
Using credit wisely.
Money and the American Family
http://www.aarp.org/research/reference/publicopinions/aresearch-import-414.html
Research from AARP that provides an in-depth look at what motivates
Americans' decisions about money and personal finance.
Additional Resources
Paper or plastic?
www.fdic.gov/consumers/consumer/news/cnspr00/cvrstry.html
The Federal Deposit Insurance Corporation's whys and wherefores of using
cash, checks, credit or debit cards.
Debit Cards - Beyond Cash or Checks
http://www.nclnet.org/debitcards.html
The National Consumer League gives tips.
Don't Get Taken to the Bank!
http://www.bbb.org/alerts/article.asp?ID=307
Safe use of ATM and debit cards.
What to Do If They're Lost or Stolen?
http://www.ftc.gov/bcp/conline/pubs/credit/atmcard.htm
How to limit your losses.