Is it safe to use a debit card?
Many people love using a debit card rather than a credit card because it’s clear and simple. At any given time, you can look and know exactly how much money you have available. You don’t have to wait until the end of the payment period, and you can’t spend money you don’t have.
Recently, I’ve been getting more and more questions about whether or not it’s safe to use debit cards with so much fraud, skimming, hacks, and scams going on. What are the risks we take on by using our debit cards and how would we handle the fall out?
Federal law limits the amount you are on the hook for as far as fraudulent transactions to $50 regardless of whether you are using a debit card or credit card. That means you’d only be responsible for paying $50 no matter how many fraudulent charges there were on your credit or debit card.
The catch with debit cards is that technically to be protected by this law you have to notify your bank within two days. If you don’t, you could have to pay up to $500. Talk about a reason to check in with your transactions on the daily.
The cash difference.
When there’s a fraudulent charge on your credit card, your credit card company can cancel the charge and take it off your bill. They often do this before the fraud investigation is over. This is now just money you now no longer owe since it was charged on a credit card.
With a debit card, the cash leaves your account when there’s a fraudulent purchase. That means you have to wait for the bank to reimburse you for the charges. This can take weeks. And depending on how fast you caught the fraudulent charges, your bank account could get completely depleted.
The same applies to merchant disputes. If goods you purchased on a debit card are damaged or lost, the cash is already out of your account so you will have to deal with the merchant directly or wait for the bank to reimburse you. This also applies if you get charged the wrong amount or multiple times. I’ve seen this happen so many times with restaurants, hotels, and even stores.
The dreaded “hold” charge.
At hotels when you check in, they'll usually ask to run a card and will charge your card with an amount as a placeholder until you check out. This might be more or less than you actually end up spending.
With a credit card, you’ll usually notice a charge from the hotel that ends up getting removed when you check out with your final bill.
With debit cards, they’ll place a hold on your balance for whatever that amount is. They’ll release the hold as soon as you check out, but it affects your available bank balance for the time being and can result in issues like overdraft charges if you aren’t expecting it. The same thing can happen with rental car companies.
What should we do?
We get to choose what we use our debit cards for and it doesn’t have to be all or nothing. Some might choose to use their debit cards for everything but hotels and car rentals, while others might put their debit cards in the drawer and vow never to use an ATM again.
Regardless of what you decide to do, it’s important to stay on top of your monthly statements so you can remedy errors quickly.
If you know using credit cards will have you spend more or get into credit card debt, you will want to either stick with debit, use cash, or employ strategies to make your credit card feel more like a debit card.