Debit Card Dangers
Debit cards, while convenient to use, can often pose a number of risks to your financial security. One of the risks is the ease with which you can lose track of how much you’re spending.
If you’re like most people who use debit cards, you don’t write down each purchase. This is the fastest way to spend money you may not actually have.
Once your account is overdrawn, the bank will assess an often hefty overdraft fee for each purchase that overdraws your account. Common sense might dictate that the bank would simply decline any debit that overdrafts your account.
But with overdraft fees as high as $36 per overdraft, this is one of the primary ways that they actually make money. Also, most debits don’t clear your account until after close of business. So if you make several purchases over the course of a day that overdraw your account, this fact is not calculated by the bank until the end of the day.
One of the best ways to avoid overdrawing your account with your debit card use is to make sure the savings in your account far exceed the amount you may spend in a day. For some people this is $600, for others it might be $1,000.
You can also avoid accruing overdraft fees by signing up for your bank’s savings account overdraft protection. If you have a savings account with the same bank that issues your debit card, the bank will automatically transfer just enough money from your savings account to cover the overdraft or overdrafts you make with your debit card.
Essentially, your savings account will simply help you avoid being charged those pesky overdraft fees. If you choose this option, however, do make sure that you have enough money in your savings account to cover any possible overdrafts.
Another risk that comes with using debit cards is the lack of fraud protection. If a thief is able to use your debit card, the money they take or spend is deducted from your account immediately. Thieves do not even need your actual card, as long as they have the card number, they can make online purchases.
Even after you contact the bank to let them know of the fraudulent use, the money is already gone. Legally, banks have up to 20 days to restore this money to your account, while they investigate the fraudulent use.
If you use a debit card, rather than a credit card, you are putting yourself at risk in a couple of ways. For one, debit cards do not help you build good credit in the way that credit cards do.
Also, you have very little transaction protection when you pay with a debit card. Credit cards offer purchase and dispute protection.
Debit cards have a daily maximum limit on purchases, usually between $200 and $500. If, for some reason, you need to purchase something over your maximum daily limit, you cannot. Keep in mind that this is a cumulative maximum spending cap. So throughout one day, you are limited in what you may spend.
Some merchants, such as hotels, will accept your debit card as a form of payment but they create a “phantom” charge up front to cover any possible fees.
So even though your hotel room rate may be $100 per night, the hotel is likely to hold $500 from your account until several days after you check out of the hotel. This money is not available to you while it is being held as a “phantom” charge by the hotel.
Rewards offered by credit cards are very common. These range from airline miles, to cash back, so simply using those cards, you are receiving something in return. This is not the case with debit cards. There are very few debit cards that offer any additional rewards.