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Posted with permission of SmartMoney, a joint publishing venture of Dow Jones & Company, Inc. and Hearst Communications, Inc. © 2005 SmartMoney. All rights reserved. This article may not be re-published or copied without the permission of SmartMoney.
The Debit Card Difference
If you're breaking the credit card habit, you're probably using your debit card (also called a check card) more than ever. Debit cards, often branded with a Visa or MasterCard logo, are the electronic equivalent of checks. When you use them to make purchases, they withdraw money directly from your checking or savings account. No muss, no fuss, right? Well, like all things financial, there are pitfalls smart consumers should be aware of.
Pitfall: Less buyer protection.
Making purchases is riskier when you pay by debit card. Why? If you pay by credit card and your merchandise doesn't show up or isn't the quality you expected, you can contest the charge without paying while your card issuer investigates. If you use a debit card, your bank isn't required to get involved—and your money is already gone.
Protect yourself:
Use debit cards only at trusted retailers. Use credit cards online and when buying expensive goods like electronics, in case anything goes wrong.
Pitfall: Electronic fraud.
Thieves now have hand-held skimmers that copy your debit or credit card information and allow them to make clones of your cards, warns consumer advocate and radio talk show host Clark Howard. Crooks can use the fake cards to clean out your bank account almost immediately.
Protect yourself:
Use credit cards instead of debit cards at restaurants and gas stations, where employees take your card out of your sight and to a cashier. If your credit card is used fraudulently, you can easily contest the bad charges.
Pitfall: Stealth overdraft fees.
Remember when your debit card would be declined if you didn't have enough money in your account? These days, banks let you overdraw by offering "courtesy overdraft loans" and then charging you an average of $34 for them, according to the Center for Responsible Lending.
Protect yourself:
Sign up at your financial institution for real overdraft protection, often a free service. You can link your debit card to a savings or other account, so funds are transferred if you accidentally overdraw. Or see if your bank will send messages to your e-mail account or cell phone if your balance goes below a set amount. Ultimately, debit cards can be great money management tools—as long as you understand how they work, and what can go wrong.
Pitfall: Surprise holds.
Unbeknownst to you, gas stations and hotels can freeze funds in your checking account when you use a debit card. The purpose: To make sure they'll get paid before you pump gas or open the mini bar. According to the American Bankers Association, these holds disappear within a few days. However, if you keep a low checking account balance, holds can cause you to overdraw your account.
Protect yourself:
Use credit cards to reserve hotel rooms. Pay in cash or by credit card at gas stations. If you must use your debit card for gas, don't sign for the transaction. Instead, use the keypad to type in your Personal Identification Number (PIN). Doing so eliminates the hold.
This SmartMoney article is provided for information purposes only and is not designed or intended as investment advice; nor as a basis or determination for making any investment decision for any security. Remember that past performance which may be referred to in the commentary is not a guarantee or prediction of future performance. Great-West Retirement Services® is not responsible for the content contained in this SmartMoney article. All general information is provided as a service of SmartMoney and does not necessarily reflect the opinions or beliefs of Great-West Retirement Services. The appearance of SmartMoney articles within this site is provided as a benefit to the users of the site and does not constitute an endorsement of this service by SmartMoney.
Posted with permission of SmartMoney, a joint publishing venture of Dow Jones & Company, Inc. and Hearst Communications, Inc. © 2009 SmartMoney. All rights reserved. This article may not be re-published or copied without the permission of SmartMoney.