Use a Debit Card

Debit cards look the same as credit cards and share many of the same convenient elements, as opposed to carrying around lots of cash or (if you really like going “old school”) writing paper checks. However, there are important differences between credit and debit cards, which impact how and where you should use them. Before deciding if you want a debit card from your bank, of if you should use it if you already have one, think about how debit card transactions work and what is best not only for your bottom line but also your personal financial security.

Steps

Choosing and Using a Card

1. Know the basics. Debit cards look just like credit cards and can usually conduct transactions in exactly the same manner, but they provide funds in very different ways. You should not think of them as interchangeable options when reaching into your wallet.
   • Basically, every time you use a credit card, you are borrowing money that you need to pay back in full when your statement period ends, if you want to avoid paying interest on outstanding balances.
   • Debit cards are linked to your bank account, on the other hand, so you are drawing money directly from that account when you use one. Unlike credit cards, you can’t spend money you don’t have in your account (barring overdraft protection features, which will be discussed later).
   • You can use a debit card anywhere that you can use a credit card. It is up to you to decide whether you should, though.
2. Look for the card that suits you best. Banks and credit unions want every customer/member to have a debit card, because it is more convenient and lucrative (through fees) for them. The perks, protections, and costs associated with debit cards can vary based on the issuing bank, so it is always best to shop around and read the fine print.
   • Look carefully at any fees associated with your card, which could include annual fees and transaction fees, among others. Some comparison shopping can lead you to a card with substantially lower fees, so it pays to look around.
   • Some banks also offer rewards for debit purchases — though usually only on “swipe-and-signature” purchases, for reasons discussed later in this article — that can include things like airline miles and cash-back bonuses. Shop around for the rewards program that suits you best.
3. Keep tabs on your available funds. With a credit card, you can spend up to your credit limit and worry about how to pay for it all when your statement comes due. With a debit card, you need to know how much money you have available in your linked account at all times, unless you want to risk having your transaction declined or incurring hefty overdraft charges.
   • Debit transactions, especially those using a PIN number, are settled quickly, so you will have little time after the fact to determine if you need to add funds to your account to cover pending charges. Normally, your card will be declined if you have insufficient funds available.
   • Many banks tout the convenience of overdraft protection coverage with your card, which you may have to sign up for (or even opt-out of if you don’t want it). Overdraft protection can save you the trouble and possible embarrassment of a declined card, by allowing you to make purchases with insufficient funds available to cover them.
   • However, this comes at the cost of substantial fees per overdraft transaction. For instance, your morning routine of buying a coffee, a newspaper, and some chewing gum at different stops could cost you an extra $75, if you have insufficient funds and your bank charges a $25 overdraft charge per transaction.
   • Look carefully into the fine print of any overdraft protection program before agreeing to it. Your best option is to always keep a close eye on your balance and not try to spend what you don’t have.
4. Consider when not to use your debit card. As mentioned earlier, you can use a debit card anywhere you can use a credit card. That does not mean you should use them interchangeably, however. The main concern is fraud and your potential liability.
   • In the U.S., federal code dictates that your maximum liability for fraudulent credit card transactions (such as if your card or number is stolen) is $50, with no time limit for initiating a claim. However, with debit cards you must claim fraudulent transactions within 48 hours to have the $50 limit. Between two and sixty days, your liability limit goes to $500, and after that time you are on the hook for all fraudulent transactions.
   • Banks can offer better than minimum fraud protection on debit cards, so shop around and ask questions when choosing a card.
   • Even with protection, dealing with debit card fraud is more of a hassle and potentially damaging to your finances. Someone who steals your card or information can drain your entire account balance, and then you have to work to get it all back in a time-consuming process. Thus, you may want to use a credit card instead of a debit card in the following situations:
     • Shopping online, unless you are absolutely confident in the site’s security level.
     • Outdoor publicly-accessible kiosks such as gas station terminals and even ATMs, where criminals can install “skimmers” that steal your card information when you swipe. Particularly avoid card reading equipment that looks damaged, mismatched, or ill-fitting.
     • Payments where your card leaves your sight, such as handing a waitress your card at a restaurant.
     • Situations where a pre-payment deposit is required, such as at a hotel. A “hold” charge may be placed on your account to cover any potential overages — such as pay-per-view movies, room service, damages, etc. — and may not be removed for several days. This leaves your own money inaccessible to you and may throw off your available funds awareness.

Completing a Transaction

1. Remember your PIN number. All debit cards require you to select a four-digit PIN number as a security measure when using the card. As with your passwords for your online accounts, you need to create a PIN number that is easy for you to remember but hard for a criminal to figure out. Never use “1234” or your four-digit birth year, for instance.
   • You always need to enter your PIN number in order to make ATM cash withdrawals with your debit card. Keep a lookout for prying eyes or evidence of “skimmers” (such as damage or mismatched equipment on the machine) when entering your card and code.
   • You have the option of using your PIN number or signing your name (as with a credit card) when making purchases with your debit card. Move on to the following two steps to consider the pros and cons of each option.
2. Swipe your card and enter your PIN (as one option). If you use your debit card at the supermarket checkout, for instance, the card reader will usually ask whether you want to pay by “debit” or “credit” after you swipe your card. If you select “debit,” you will have to enter your PIN number to complete the transaction.
   • Regardless of whether you “swipe-and-PIN” or “swipe-and-sign,” debit card transactions draw from the available funds in your linked bank account. However, PIN transactions tend to go through faster, usually by the end of the day.
   • Banks, however, collect more in “interchange fees” from retailers when you “swipe-and-sign,” so they may charge you fees for “swipe-and-PIN” transactions or offer you rewards (such as airline miles) only for “swipe-and-sign” transactions. Read your account’s fine print.
   • If you are concerned about saving the retailer a bit of money, entering your PIN costs them less in interchange fees.
   • Some consider PIN transactions slightly more secure, but that is up for debate.
3. Swipe your card and sign your name (as another option). You can choose to use your debit card as if it were a credit card at the supermarket checkout, which requires you to sign to complete the transaction instead of entering your PIN number. Remember, however, that these so-called “credit” transactions are still just debit transactions taking funds out of your linked account. If you want to pay with credit, you have to use a credit card.
   • Banks earn more per transaction in “interchange fees” when you process your debit card like a credit card transaction (by signing), so they tend to reward you for signing with bonuses or perks, penalize you with fees for “sign-and-PIN” transactions, or both. The bank gets its share either way; it depends upon whether you want yourself or the retailer to foot slightly more of the bill.
   • Look for debit cards that offer rewards that are valuable to you (like cash back or airline miles), because this is a good reason to choose the “swipe-and-sign” option. The bank may offer you the same, more extensive fraud protections as a credit card when you use your debit card like one, so check on their policies in that area as well. If you can get a reduced fraud liability ($50 at most) and easier fraud-resolution process simply by signing instead of entering a PIN, take it.
   • Just as some people see “swipe-and-PIN” as more secure, others see “swipe-and-sign” as the safer option. The unfortunate reality is that fraud can happen to consumers who use either method.
4. Prepare for chip technology. In Europe, much of Asia, and many other parts of the world outside the United States, credit cards have already switched over to using embedded chip technology (instead of magnetic strip swiping) for added security. This change is slowly coming to America as well, and will eventually make its way to debit cards.
   • Chip cards actually come in two varieties: “chip-and-sign,” which is a half-measure that provides slightly improved security; and “chip-and-PIN,” which is considered more fraud-resistant. “Chip-and-PIN” is the standard in Europe, for example.
   • Instead of swiping a chip card, you slide it into the card reader, wait for notification, then remove it. Otherwise, the process is basically the same. During the long transition period, chip cards also have magnetic strips so that they will still work with older card readers.
   • Once chip technology becomes commonplace for U.S. debit cards, new considerations on the smartest and safest ways to use them will have to be determined.

Warnings

• Check your bank statements to make sure that the debit amounts charged to you are correct. Inform your bank of any discrepancies.
• Some banks charge certain fees for PIN transactions. Check the fees associated with your debit card.
• Never disclose your PIN to anyone.

Related Articles

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Sources and Citations

See also

• Check the Balance of a Debit Card
• Turn in a Lost Credit Card
• Use a Credit Card
• Cancel a Credit Card
• Activate Your Atm Card
• Use a Credit Card Payoff Calculator
• Use a Credit Card as a Debit Card
• Use a Credit Card System
• Transfer a Visa Gift Card Balance to Your Bank Account with Square
• Add Money to PayPal

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What links here

• Rent a Car Without a Credit Card
• Shop Online Using a Debit Card
• Use a Credit Card as a Debit Card