Debit card safety facts
David Bach over at Yahoo Finance has a piece about some lesser-known debit card facts. He points out something I just recently learned - Mastercard/VISA logo cards have the same fraud protection as credit cards. Meaning if your card is stolen, you liability is limited to $50 if you report the card stolen. Some banks do even better and won’t charge you anything in the even your card and/or number is stolen.
I personally use my debit card for everything except Internet purchases and vacation charges. I use it during vacation because I can’t check our bank account every day during vacation like I typically do at home. Since until recently, as I pointed out, I didn’t know you got credit-card like fraud protection on the debit card, I considered it slightly safer. Plus I can group everything together under the ‘vacation’ heading when doing budgeting. I know many PF bloggers advocate using their rewards credit cards for everything, but I found it too a little too cumbersome. Besides that, my debit card has a cash-back element to it anyway, it’s just not as sweet as some of the credit card rewards programs.
Something else of interest regarding debit cards is that PIN transactions are much less protected by the bank. In other words, if your PIN becomes known along with a stolen card, you liability increases significantly. So it’s probably not such a great idea to write that PIN on the back of the card.
April 21st, 2007 at 4:08 am
Dude, I COMPLETELY disagree with this. Debit card use makes tracking your spending a total pain! Forget a paper register on your checking account. Minutia in organizing your spending boils down to budgeting, which is for beginners that lack self-control. If you know you can afford everything you’re looking to buy and you’re not buying a bunch of crap that you don’t need, then you just charge it and let the bill pay itself. If you need to keep a vacation’s expenditures together, just keep all the credit card receipts in an envelope until you get home. Yeah, you can see all the debit transactions on your bank website, but if something’s wrong, the money is already out of your account and the entire time you’re fighting to get it back, you don’t have that money.
I use a credit card for every possible purchase for three reasons: 1) I buy all the crap I need to buy during the month, including utilities and bills that accept credit, and I can check it every day. Then it comes out in one automatic, electronic transaction from my checking account. 2) I’ve found a credit card that earns me basically 3% cash back. It’s a miles card actually, but I’m in a situation where I HAVE to fly to get out of my town and there’s only one airline, so the miles get used, and they redeem at 20,000 miles for a ticket that is $640 at the cheapest, thus the 3 cents returned per dollar spent (mile earned on the card). Not that I’ll always use this card, but for now it works very well. I probably put $3000 to $4000 a month on it. And 3), not that it makes that much more in interest, but I basically own that money for up to 60 days (billing cycle plus payment cycle) after I get the item home. The time-value of money applies even in the short term with small amounts. You want to have the money in your possession for as long as possible. If the business lets you delay payment 6 months or year, why would you pay now? Same thing applies for 1/6 of a year (2 month) delay.
I’m just anti-debit card because you might as well just be carrying around cash.
April 23rd, 2007 at 9:01 am
I can appreciate your view. I know a lot of people who are in control of their finances like you use this technique. It would work for us if it was only one person buying stuff throughout the month. However, with two, I’d be waiting a month to find out if our clothing purchases are out of hand, for example. That’s not in any way to say my wife goes crazy and/or we don’t communicate - we do.
Like I said, you make excellent points and your method is well-founded. I just prefer a different method. The point of the post wasn’t to advocate one method over another. I just didn’t know about the debit card fraud protection feature.
April 30th, 2007 at 5:35 am
KMC, Ah yes, the dreaded “wife factor”. Well, I watch that credit card “recent transactions” page like a hawk, Believe me, she hears about it well before 2 months after she pulls the trigger on that 5th purse. She’s lucky if it goes 2 hours.
In fact, this is another reason I love the credit card! Returns. The whole “I’m buying this because it’s cute but I probably won’t like it by the time I get home so I’ll make a special trip to return it so that I have another excuse to go to Target” thing becomes moot with a credit card. I’m hoping returns are just as smooth with debit?
I am also rapidly becoming an advocate of the credit card as your emergency fund. Think of it this way…much like insurance, the emergency fund is there in the UNLIKELY circumstance that you need it. So, the odds favor nothing happening. The margin between savings interest and investment production over the probable amount of time that you would have an emergency fund are well beyond the little bit of interest that you’d have to pay on a credit card that had spent years in good standing. So why have it actually tied up when you can just insure that contingency for free? Pay the small price if it ever comes to that. Don’t buy “end of the world” insurance.
April 30th, 2007 at 10:18 am
I guess I don’t understand the part about returns. How is using a credit card superior to a debit when returning something?
Your comment about the emergency fund/credit card connection is right in line with my thinking. I have a post brewing about that very thing. The short version right now is that I agree with you 100% on this. I like a small emergency buffer, but I don’t keep anything of size in an emergency fund.
May 1st, 2007 at 5:37 am
I didn’t mean to differentiate there. Basically, it’s easy to buy and return something and it becomes entirely transparent because the transaction never involves any of your money. No difference from debit on the actual return.
Anyway, tying in my next car purchase to this thread, do you think they’ll let me charge it? Even if it takes 2 cards? Because I could sure use 25,000 frequent flyer miles (a free ticket) that I’d get just by running it through the card instead of writing the check. Also, by holding that $25k in an account for an extra 2 months, that actually would be an appreciable amount of interest.
May 1st, 2007 at 8:09 am
We tried to charge this last car. No dice. Because of the transaction fee for the dealership, they wouldn’t do it at either of the places we asked (one of which we actually bought the car from). I shouldn’t say that - they would do it but wanted to charge us the transaction fee. I don’t think so. I’d like to hear from somebody who’s pulled it off, though.