Debit cards are so similar to credit cards that it is quite possible to pull the wrong card from your wallet in making a payment. They are the same size, have similar information embossed on the plastic and are used similarly – a simple swipe and a signed bill and the transaction can be completed. However, they are very different in how they operate.
A credit card allows you to access borrowed funds with the risk of paying an exorbitant interest rate if the monthly bill is not paid in full by or before the closing date.
With a debit card, the merchant’s “hand” goes directly into your chequing account and takes the payment for the goods or services which you are buying. The debit card provides another range of risks through this direct and immediate payment.
This article looks at how to limit debit card risks for a number of transactions.
First, because the credit and debit cards are so similar, your debit card should be placed in a distinctly different place in your wallet or purse from where you usually keep your credit card.
For example, keep the debit card next to the dollar bills whilst keeping the credit cards in the area for business and other plastic cards. This would reduce the likelihood of your pulling the wrong card out when making a purchase. Numerous people have reported using their debit cards by mistake when they had intended to make the charge to their credit card.
If your debit card is lost or stolen, you may be exposed to the full extent of the balance on your chequing account. Furthermore, if you give or lend your card to someone who goes on to make an unauthorized withdrawal or payment, you are fully liable and have very limited recourse.
That is why you should avoid using your debit card anywhere where it leaves your sight, like in a restaurant. It is exceedingly important to guard the use of your debit card and to keep it in a very safe and secure place.
It is even more imperative that your debit card be protected from unauthorized digital scanners. A blocking sleeve is recommended for your debit card which will then sit in its separate place in your wallet, whereas a blocking case can be used for other credit, ATM and ID cards. These blocking devices provide protection against theft and fraud by unauthorized digital and electronic scanning devices.
For sure, you should avoid using your debit card for online purchases as this exposes the funds on your chequing account to online theft and fraudulent transactions. A credit card offers better protection for online purchases and even then precautionary measures are necessary.
A debit card will also tie up unnecessary money when used for a security deposit, like booking a hotel or for renting a vehicle. Again, when a credit card is used, the hold on the security deposit does not limit the use of the card in the same way. Furthermore, with the use of a debit card to hold a booking, why would you wish to allow access to your debit card information for that extended time?
Some users have found that using debit cards for recurring payments like monthly insurance premiums can lead to continued debits to their chequing account long after the policy has matured or has been cancelled. Again, this is better done with a credit card since each month, you will have the chance to review the bill before paying it. With the debit card, even when you review the chequing account statement, the payment is already made and you will need to try to recover it.
• Louise Fairsave is a personal financial management advisor, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.
