Finances: If You’ve Only Got a Debit, Deposits and Fees Are Commonplace
Visa and MasterCard, along with countless banks and financial institutions, spend millions on advertising trying to convince consumers to use their debit cards for everyday purchases. For some recently divorced people trying to re-establish their credit, a debit card is often the only piece of plastic in their wallet. Before swiping your debit card again, however, make sure the convenience is really worth it.
While the ads boast that debit cards are convenient, many offer a few inconveniences as well. A debit card with a Visa or MasterCard logo is linked to your checking or savings account. As a consumer, you’re not granted any credit. When you make a purchase, the funds for the transaction are deducted from your account.
The advertised benefit is that you don’t have to carry around a lot of cash, write a check or have a major credit card to make purchases wherever Visa or MasterCard are accepted. Yes, this is a convenient feature of a debit card. However, if you have a disagreement or problem with the merchant from whom you made a purchase, or if your card is lost, stolen or involved with any type of fraud, as the consumer, you may have very little protection.
While the ads say that debit cards have the same zero-liability policy as credit cards, the protection you have as a debit card user is at the discretion of the issuing bank. So it is wise to take the proper precautions.
DEBIT CARD USERS DON’T HAVE THE SAME RIGHTS
If you make a purchase by writing a check, you can issue a stop payment if a problem arises. Likewise, if you use a major credit card, you can call the card issuer and perform a charge back if the merchant is unwilling to issue a refund or resolve the problem. Debit card users, however, often have little recourse. Once a purchase is made, the funds are deducted from their checking account.
Your issuing bank must offer a zero-liability policy for debit card users, or it does not exist, despite what those Visa and MasterCard commercials state. Debit cards are very different from credit cards. You need to understand how debit card transactions are processed through your bank. If they’re processed like a credit card, the zero-liability against fraud, for example, may be in place and protect you. “If the money is immediately taken from your account when you make a purchase, you’ll need to fight with the merchant to get a refund, because the debit card issuer won’t be able to help you. You might also lack coverage against theft or fraud,” explains Ellen Cannon, managing editor at Bankrate.com.
Debit cards have potential drawbacks as well. Many debit cards have a daily limit in terms of how much that can be spent, or a transaction limit, which relates to how many times the card can be used in a 24-hour period. “If you plan to withdraw money from an ATM that’s not affiliated with your bank, you’ll also be exposed to potentially high ATM fees,” adds Cannon.
Because your debit card spending is directly linked to your account, if you overspend and it results in an overdraft to your account, your bank will charge you.
USING A DEBIT CARD? A DEPOSIT MAY BE REQUIRED
As if gasoline prices weren’t high enough, many stations now charge debit card users a deposit of up to $50 when they fill up. This deposit gets refunded in between one and ten days. “These deposits are required to insure that enough money will be available in the cardholder’s checking account until the transaction is complete,” says Cannon.
Travelers who attempt to use their debit card to rent a car or check into a hotel will also be faced with required deposits. Not all major car rental companies will accept debit cards. Those that do will perform a credit check on you and will require up to a $300 deposit when you pick up your vehicle. If your credit score is low and you don’t have a credit card, you could be turned away. Deposits taken will be returned within 10 days after returning the vehicle, however, until that time, you won’t have access to that money in your account.
Many hotels across the country have become cashless businesses, meaning that guests must present a major credit card at check-in. Debit card users, however, will be required to make a significant deposit, up to $500. What this means is that if you don’t possess a major credit card, but you’re planning even a short a trip, $800 or more of your money could be held for up to 10 days, if you plan on renting a car, buying gas and staying at a hotel. With this money being held outside of your account, to avoid additional (non-refundable) fees, make sure you don’t have an overdraft.
Every bank or financial institution has different policies relating to debit cards. Be sure you understand these policies, the fees associated with using your debit card, and what protections you’re being offered against theft or fraud. For example, if you fail to report a lost or stolen debit card within a pre-determined time period (typically two days), and your account gets wiped out, you could wind up losing your money, as opposed to being liable for just $50.
Best case scenario, you may have to wait ten days for the bank to conduct an investigation, during which time you won’t have access to your lost or stolen funds. If you’re traveling overseas, be sure to ask about currency conversion fees, which might be extremely high. “Due to high fraud, some banks don’t allow debit cards to be used overseas,” adds Cannon.
One way to protect yourself as a debit card user is to have your bank set a daily spending limit for the card of $500 or $1,000. This means that if someone were to obtain your card and your Personal Identification Number (PIN), they would not be able to steal more than your daily spending limit. If you need to make a large purchase, you’ll need to call your bank to allow for a temporary increase. Also, avoid using your debit card to make purchases on the Internet.
Regardless of what the ads say, using a debit card does not give you the same protections as if you were to use a major credit card, so proceed with caution and always keep your Personal Identification Number (PIN) a secret.
