Slow down! Remember: this new generation of plastic can be confusing. For starters, they’re not credit cards. They’re more like checks. And while they have their charms, they can trash your bank account if you’re unaware of their finer points. Keep them in your wallet until you read this.
IF YOU’RE CONFUSED BY THE new debit world, it’s not because you’re dumb. Riggs Bank in Washington, D.C., reportedly had to send out four successive letters re-explaining its Visa Check Card to customers. Horror stories abound of shoppers who thought they were using credit cards until they started bouncing checks. There are two types of debit transactions, both often housed on the very same card that your bank sends you as a replacement for your old ATM card. The first are online transactions you perform at a cash machine. Punch in a PIN and the funds you tap are electronically transferred from your checking account within moments. The second (and faster-growing) are offline transactions: you present your card in a store, and voilA! They feel like credit-card sales, and don’t require a PIN. But a couple of days later the money disappears from your checking account.
DEBIT CARDS ARE AS EASY TO rip off as a credit card, but boy, can that make a mess. A thief with your debit card can clean out your checking account before you figure out that anything’s missing, says Ruth Susswein of the Bankcard Holders of America. Paper checks you’ve written can bounce while you sort things out with your bank. If you report a lost or stolen card to the bank within two business days, your liability is limited to $50; if you wait longer, your liability goes up to $500. A bit of relevant fine print here: a thief doesn’t need your card to muck you up, just your number. If you don’t discover such a theft until you get your-checking-account statement, you have 60 days to report it and limit your liability to $50.
THE FIRST ONE IS FREE,’’ OR so goes the mantra of drug pushers and new financial-service providers. There are charges associated with debit cards, but many of them are invisible to shoppers because they are currently being ““waived’’ until consumers get used to the plastic. Offline cards have minimal fees that typically run $1.50 a month. Online transactions can cost 50 cents or more each, reports Debit Card News editor Rich Mitchell. Some cards pay you to use them: In Portland, Ore., U.S. Bank’s Check Card gives its customers 0.5 percent back on every purchase. Ask your banker to make your debit card worth your while.
DEBIT DEVOTEE JOHN KRESGE, a senior vice president with U.S. Bank, gets a monthly checking-account statement that’s five pages long–and only four of the transactions are actual checks. If you are going to be a heavy debit-card user, get compulsive about record-keeping, and spring for overdraft protection so you won’t debit your checking account into default. Or keep a fat cushion in your checking account for the monthly reckoning, and trust that your statement is always right.
TAKE YOUR OFFLINE DEBIT card to the gas station and you can end up with the worst of two worlds: paying a higher credit price for your gas while the amount is deducted within days from your checking account. Use an online card at the grocery and you can end up paying that 50-cent fee, even though the same grocery is happy to process your purchase as an offline debit transaction. Every time you are tempted to use your card, think about whether you’re better with an online or offline transaction, or an old-fashioned paper check.
ARE YOU REALLY DISCIPLINED about your money? Then forget the debit card and become one of those credit-card convenience users your bank loves to hate. Find a card, like the MasterCard and Visa offered by Chevy Chase Federal Savings Bank in Maryland, that gives you 1 percent back on all of your purchases. Use that card for all your groceries, movie tickets and other incidental purchases that you don’t want to bother writing checks for. Pay it off once a month to avoid paying interest. Instead of making your banker rich, make your banker pay you.
