Advantages and Downsides of Debit Cards
OnlineGuideTo.com — Nowadays more people are using debit cards as a convenient way to curtail their expenditures.
Debit cards offer a number of conveniences as compared to credit cards. But there are also some drawbacks you should be aware of.
Like credit cards, debit cards allow you to carry as little cash as possible while still being able to pay for your purchases.
The money is gone right away
The major difference is that the amount you pay with a debit card is immediately debited — subtracted – from your bank account. Therefore it pays to be aware of how much money you have in your checking account.
Whereas buying goods and services on credit encourages many people to overspend, knowing that there’s a limit to your available resources works wonders for managing your budget.
Tip: If your checking account has overdraft protection, do not fool yourself by thinking of your available credit line (for that is what it is) as ‘your money.’ Think of it as insurance. You do not necessarily want to use that money.
Purchase protection goes missing
One downside to debit cards is that — in many cases — you do not have the same level of purchase protection afforded to you by credit cards. For instance, if you order something online using a credit card, the bank protects your purchase should it go missing in the mail or arrive damaged.
Some companies may offer a similar type of protection. It pays to familiarize yourself with each company’s policies before completing your purchase.
In the U.S. by law banks must protect you from unauthorized withdrawals — but only if you have reported your ATM or debit card as missing or stolen before it is misused.
If your debit card is used fraudulently your liability is $50 if you notify the bank with 2 days of learning of the fraud.
After two business days you will be liable for up to $500 — and if you fail to report a missing or stolen debit card within 60 days after the date your banking statement is mailed to you, you risk unlimited loss. That means you will be liable for all the money taken from your account by someone using your card fraudently — plus the unusued portion of your maximum line of credit (overdraft protection).
Note that in some states, such as Massachusetts, local laws may offer more liability protection.
Overdraft Charges
Starting July 1 this year Federal Reserve Board regulations will prohib financial institutions from charging overdraft fees for ATM and one-time debit card transactions — unless you have specifically opted in to overdraft services for such transactions.
As always, be careful to read any and all statements and letters your bank sends you. The devil is, as usual, in the details.
Build Credit
Use debit cards as part of your overall approach to using credit wisely. But do not stop using your credit cards entirely. After all, only by using credit — and paying the resulting bills on time — do you build and maintain a good credit score.
