Americans wary of racking up credit card debt-or simply fed up with the way credit card companies treated them in 2009-continue to pick the debit piece of plastic in their wallets over their credit cards. Unfortunately, every time we decide to use our debit cards we are taking a risk.
Unlike credit cards, debit cards may only offer limited protections if lost or stolen. And, because debit card are tethered to bank accounts, debit card fraud can lead to a litany of costly and time consuming problems.
By law, credit card users have a maximum liability of $50 in the event of any unauthorized use. Similar regulations limit potential losses on debit cards to $50, but only if the loss is reported within two business days. On day three, you could be on the hook for up to $500 in fraudulent transactions. If for some reason you fail to report a lost or stolen card for more than 60 days, you could lose everything in your account.
Although not required by law, many banks voluntarily provide varying forms of liability protection for debit cards, including the same $0 liability that is offered with most credit cards. Because these protections vary from bank to bank, it is important to know your bank's policy. This is particularly important for anyone who doesn't check their account balances regularly.
Even if your bank does provide some form of liability protection, a compromised debit card can still create significantly more havoc than a lost credit card. When a credit card is stolen, you generally lose access to your account while a new card is mailed. This can be an inconvenience, but at least you still have funds in the bank to fall back on.
On the other hand, when your debit card is stolen, fraudulent charges can quickly deplete your available cash. If, for example, a stolen debit card drains your account enough to cause a credit card payment to bounce, you could be faced with not only a returned check fee, but a late fee. With some credit card companies, the bill for this can exceed $70.
Bounced check and late fees are quantifiable problems; losing access to your cash, even if it's only for 24 hours, can lead to innumerable issues and substantial headaches as you fight to get your funds reinstated and wait for your new debit card to arrive in the mail.
A simple way to avoid a debit-card nightmare is to use your credit card like a debit card. Charge items you would otherwise buy with debit, then repay your new charges in full every month. This strategy protects the cash you have in the bank and, as long as you repay your new credit card charges in full, eliminates interest expenses. Plus, you can rack up credit card rewards in the process.
