The $38 cup of coffee? The Top 5 risks of using your debit card
Filed under: Banks, Consumer Ally, Banking-checking-account
Consider this case: a man miscalculates how much money is in his checking account, uses it seven times in a day with no single charge more than $12 and ends up charged with $234 in overdraft fees. Welcome to the dangers of debit cards.The plight of Peter Means, 59, of Colorado and how he came to be facing all these fees -- which in one instance cost him more than $38 for a cup of coffee at Starbucks ($4.14 for the coffee, $34 for the overdraft) -- was chronicled in the New York Times. Means' situation is just an example of how big a profit center these fees have become for banks, how important they are for banks and how consumer outrage over them have pushed lawmakers to try to rein them in.
In concept, there's a lot of good about using debit cards -- you don't have to carry cash, you're spending money you already have instead of borrowing and it is just about universally accepted.
But with this convenience comes risks that aren't always so obvious. And with more and more people relying on debit cards as their primary means of spending, it is more important than ever to understand the risks.
Debit cards are not credit cards and are not afforded the same protection as credit cards when it comes to theft. Debit cards are, however, attached to your bank account, which means a mistake could be costly.
Here are the top five risks of using debit cards you need to keep in mind:
- You are using your checking account and transactions are real-time, so when you buy something the money changes hands immediately.
- Because your checking account is the source of funds, you are subject to overdraft charges and could cause checks to bounce if you don't keep track of spending.
- You are not afforded the same protections as credit cards in the case of theft.
- When using debit cards for certain purchases, such as gas, a temporary hold in an amount greater than the purchase can be placed on your bank account -- making it seem as though you have less money that you really do and denying you access to that cash.
- You do not have the same protection a credit card affords if you have a problem with a purchase.
Banks are using these errors as a source of profit. Beware. (For that matter, also be wary of a bunch of new enticements banks are offering to get people to open savings account. They are not always what they're made out to be.)
Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group, offers advice for those intent on using debit cards.
"If you must use debit cards, despite the risks, at least avoid the chance of bounced overdraft fees by keeping an extra $200 buffer in your account at all times," he advises. "If the ATM screen or computer screen or your statement says $300, pretend you only have $100. If it says $200 or less, don't use the card."
The situation gets still dicier if you consider the rules that apply to debit cards that are stolen.
Your losses are capped at $50 for unauthorized charges on a credit card. With a debit card it's more of a race to see how quickly you realize it's gone.
Report the card is gone within two days and you're limited to a $50 loss, which is in addition to straightening out any potential overdrafts and other pesky inconveniences experienced by having someone spending money from your bank account. Wait more than two days and your loss is now capped at $500. Wait more than 60 days after a statement is mailed to your home with unauthorized charges and it's all on you.
That is in addition to also not getting the same protection for purchases, since the store already has your money. That means you don't have the credit card company as your mediator in a dispute.
"And don't ever use the cards on the Internet -- that's a gamble," Mierzwinski said. "But I also strongly believe that with the increased number of security breaches, coupled with the fact that you're out your own money until and if the bank refunds you after a fraud, it isn't worth the risk to use one of these cards anywhere."
Reader Comments (Page 1 of 10)
8-12-2009 @ 3:11PM
Betty said...
Bank of America will charge 35.00 10 or 15 times per
month which absolutely wipes you out.
Reply
8-25-2009 @ 9:36AM
randyeytcheson said...
Booo Bank of America
8-25-2009 @ 12:47PM
J. Blair said...
Bank of America and my local bank got me for the $35.00 over draft fee x 20 on the Debit card before I shut it off!
8-12-2009 @ 12:55PM
Greg Patrick said...
I am going to have to disagee with some of the article. They key is to record your transactions. Not all those breaches happened online. You can prevent the overdraft by recording all your transactions. As for using it online, it can be safe if you use it a trustworthy merchants and billers. You can save your card details at Paypal, Amazon payment and Google Checkout. If you check your checking account online daily, you can catch fraudulent transactions. First time order if you dont trust a merchant, use a Visa or Mastercard debit gift card if cant use Google, Paypal or Amazon. Then if you have no problems, use your debit card.
Reply
8-25-2009 @ 6:06AM
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8-25-2009 @ 6:10AM
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8-25-2009 @ 6:18AM
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8-25-2009 @ 7:35AM
Lynda Carter said...
I beg to differ. I just had my Paypal account breached to the tune of $1,674.00. I contacted my bank immediately and also Paypal. The reply from Paypal was "We'll look into it". In the meantime, about 150.00 worth of overdraft fees were charged to my account. The bank says you had an account with Paypal, not our problem. So with that being said, don't count on ANY "trusted" site to protect you. BTW, I cancelled my Paypal account (this was the second time this had happened) and I changed banks.
8-25-2009 @ 8:46AM
richard said...
that sounds like a lot of unnesessary checking that would not be needed if you used a credit card. why do you think the banks are pushing debit cards.
HOW MANY PEOPLE CHECK THEIR BALANCES EVERY DAY?
8-25-2009 @ 9:03AM
mariam said...
I agree with your statement, I use debit card for alot of things and never have I had any problems. This article was written so people can start using credit cards and getting more into debts.
8-25-2009 @ 9:36AM
joe said...
A stolen Dedit Card CAN NOT be used as a credit card with out the PIN!!!!
A Debit Card with a Credit Card Logo on it CAN be used as a Chredit Card!!!!
Every Bank in the United States can issue u either kind. It's the credit card companies like VISA, MASTERCARD that have pushed the banks into the use of these combo "Debit / Credit" type cards, because this way Visa / Master card make a cut of the profiits without the risk of actually giving credit. Just insist that your bank give u a traditional ATM debit card only. Now remember that u will not be able to use a debit card at a few places that only take credit cards. Then just use cash or your real credit card.
8-25-2009 @ 11:27AM
Jenny said...
I am with Lynda Carter! The exact same thing happened to me with PayPal and I am still cleaning up the mess. Note: I did NOT click on a phishing email or anythign like that. As soon as I am finished, I will also be cancelling my PayPal account and will be changing banks to one that is actually focused on protecting their customers and their hard-earned money.
9-10-2009 @ 7:49PM
Laurie said...
I agree with this comment. If you use a debit card, it is the holders resonsiblity to monitor the transactions. I have also used my card many times on trusted sites without any problems...Author needs to do his homework prior to publishing this wrong information for public viewing............
9-10-2009 @ 8:23PM
pitcherday said...
I agree with you. If you are careful, you should be ok. Most people have online access to their accounts anyway. If you are vigilant, you can catch unauthorized use pretty quickly. Saying people should never use a debit card is ridiculous. They are a viable payment option for those with shaky/no credit.
9-14-2009 @ 11:34PM
Gayla said...
You are right on the money - pun intended. I work for a credit union, and although there are members who do have a merchant error at times, the majority of fees incurred from using a debit card is because 9 out of 10 account holders do NOT keep a transaction register anymore. They watch their account online, but often forget about some transactions until it's too late - therefore overdrawing their account. I make the decision to return fees or not, and it is very difficult for me to say "Yes" when it is not our error. I almost always refund the first time as a courtesy. However, I cannot justify refunding fees when you tell me your power will be turned off if I don't - and every charge on your debit card is for Starbucks, the Nail Salon, and 10 restaurants! You need to change your spending habits if you're living paycheck-to-paycheck!
9-15-2009 @ 1:42AM
Paula said...
Joe,
I NEVER have to use a pin when I use my debit as a credit card. Nobody checks ID, and very few people check signatures. I dare you to leave your debit card at a bus stop and see what happens.
10-06-2009 @ 2:48PM
Michel said...
Tons of reputable sellers have had customers' information stolen by hackers, or have accidentally exposed them with mistakes. Just because the company is an honest seller doesn't mean they have good security. And the larger and more established the company, the more it is targeted by hackers. So you can devote part of everyday to checking your credit report instead of doing something useful, or you can use a credit card.
8-12-2009 @ 5:36PM
Greg said...
Debit cards are just not worth the risk. Cash is king and when cash isn't possible you're better off with the protection of a real credit card.
However, if you use a credit card just pay it off!
If you can't pay cash, you can't afford it.
Spend less, save more, live within your means and get rich in the process!
http://www.eliminatethemuda.com
Reply
8-25-2009 @ 8:14AM
ray said...
i agree
9-14-2009 @ 8:46PM
gr8bsn said...
You ever try renting a car or getting a hotel room with cash? GOOD LUCK! Not everyone can get credit cards, leaving debit as the only option where a credit card is required.