Debit Cards — To Use or Not to Use
By: Adam Ledbetter, CFP®
The Henssler Financial Group Position Paper

A debit card looks like a credit card, but works like a personal check or cash. When you use a debit card, the money is automatically deducted from your checking account, just as if you had written a check. Debit cards may be used at any location that accepts your card's brand name. Debit cards differ from credit cards in that you are paying for the transaction now, rather than paying at a later time. Most debit cards these days offer two types of transactions: You can choose the ATM feature, and enter a personal identification number (PIN) when you make the transaction; or you can choose the credit card feature, which does not require a PIN, but requires your signature. Whichever option is chosen, the money is still deducted from your checking account.

The "Pros" on Debit Cards:

  • Ease of use;
  • Not having to carry a lot of cash on hand;
  • Not having to write a check;
  • Accepted places that may not accept checks;
  • Availability to use at ATM for cash withdrawals, and
  • Easier to obtain than credit cards.

The "Cons" on Debit Cards:

  • Security — This is the biggest "con" for debit cards. Concern for theft, fraud, etc.
  • Ease of mismanagement — You must keep up with all your transactions, since each transaction is immediately deducted from your checking account. Otherwise, you will have overdraft fees in your accounts.
  • More liability than credit cards, if lost or stolen.
  • Watch for fees — Some institutions charge a fee for the use of a debit card.

Security Tips:

  • If you lose your card or it is stolen, report this immediately to the issuer of the card.
  • If your card has a PIN assigned to it, keep this confidential. Do not give this information to anyone.
  • Do not use a PIN that is the same as your personal information like your birthday, Social Security number, etc.
  • Memorize your PIN so that you do not have to carry it around with you.
  • Be cautious when giving your card number or Social Security number over the phone, unless you know the company and their purpose for needing the information.
  • If using for online purchases, make sure they have some sort or information protection software installed. Generally, it is better to use your credit card for online purchases.
  • Review your statements as quickly as you can to determine if there are any unauthorized transactions.
  • Keep a record of all of your transactions.

Financial Loss:

Your liability is greater with debit cards than it is with credit cards; therefore, you should try to limit your financial loss in the event of a lost or stolen card. You should report any lost or stolen card to the issuer of the card immediately. For credit cards, the maximum amount that you are held liable for under federal law for unauthorized use is $50 per card. For debit cards, your liability depends on how long it takes you to report the loss. If you report the loss before the card is used, you will not be held liable for any unauthorized charges. If the loss is reported within two business days, you will not be responsible for more than $50 for unauthorized use. If the loss is not reported within two days, you could be held liable for up to $500 of unauthorized transactions. You could be held liable for the entire amount of all unauthorized charges if you do not report these charges within sixty days of receiving your bank statement, which shows the charges. Again, the best practice is to report to your banking institution as soon as a card is lost or stolen, or you notice any unauthorized charges.

Real Life Example:

One of our clients at The Henssler Financial Group experienced this first hand, giving us the idea to write this article to forewarn people of the potential hazards of debit card use. We interviewed our client, and received his permission to use his story. Below is a record of his endeavor.

He received his monthly bank statement and noticed three bogus charges, all with the same Internet address listed as the billing institution's name. He visited the web site, and it turned out to be a bill payment site used by Internet companies. He was able to find that the site had a history of the transactions that were charged to his card.

The site had his name and debit card number on file. These charges were set to occur on a monthly basis. He was able to go to the web site that was responsible for the charges and request a cancellation of the monthly withdrawals. He went to the bank and notified them immediately about the fraudulent charges. He had them cancel his existing card and issue him another one. The bank filed his claim information and began their investigation into his claim. The bank placed a fraud alert on the old card for any future usage. His bank said that it could take up to 90 days to complete the investigation into the charges.

The bank contacted him after about a week to get his story again as to what had occurred. The bank then sent him the forms to complete, which outlined all of the fraudulent charges. About a month later, he received a full reimbursement from his bank for all these charges.

One very important fact regarding this particular client's situation is that he had never used his debit card for any Internet transactions. He used the card for gas, dining, etc. You do not have to use the card online to be at risk. Also, please note that depending on your particular bank's rules and regulations, your end result may differ. You might not receive a full reimbursement. Again, the most important step is to report any fraudulent charges to your financial institution immediately.

Your Decision:

It is your decision as to whether you want to own a debit card. If you do not feel secure in using the card, do not use it. If you prefer a traditional ATM card for needed cash withdrawals instead of a debit card, your banking institution should provide you with one. There is no right or wrong answer when it comes to whether these cards are good for consumers. It is all about personal preference.

If you would like additional information on debit cards and your liability as a user, you can visit www.ftc.gov, or any other site offering consumer protection information. You may also contact The Henssler Financial Group at comments@henssler.com or 770-429-9166.

All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.
 
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