Debit cards also known as check cards, ATM cards, and express checking cards can be used to withdraw cash from your bank account via ATM and make purchases without using credit. They look similar to a credit card and work by taking the money directly out of your bank account.
Two types of Debit Cards
A traditional debit card is issued through your bank and requires a personal identification number, or PIN, to complete a transaction. A PIN-based or direct debit card removes a purchase price from your checking account almost immediately. These kinds of debit cards are accepted at gas stations, supermarkets and stores such as Wal-Mart, Walgreen’s and Target. A deferred debit card is also issued through your bank but bears a logo of a major credit card company. To use it you can enter a PIN or sign for the purchase as you would with a credit card. A signature-based or deferred debit card has a Visa or MasterCard logo. These cards are accepted anywhere Visa and MasterCard are accepted. Just hand the clerk your card and sign a sales slip and you’re done. The purchase amount will be removed from your bank account in two or three days. When you swipe your card through at the checkout line, you’ll be asked if you want to pay by debit or credit. If you hit “debit,” you’ll need to input your PIN number. If you hit “credit,” you’ll need to sign the sales slip.
PIN offers the best protection
Some consumer experts urge people to choose PIN-based, direct debit cards only. With a PIN-based debit card you have to know the PIN number to make a purchase. With a signature-based debit card, anyone could pick up the card and sign your name to it. It may limit the number of places you can use it. But that’s the tradeoff you make for extra security.
Return policies can vary
According to the ABA many merchants treat a debit card purchase as they would a personal check or cash. This means you may get several hundred dollars in store credit instead of a refund for debit card purchases. So as a dissatisfied debit card customer you’re pretty much stuck trying to resolve the dispute with a merchant on your own. It could go on for weeks or months and when it’s all said and done you may not get your money back. When you make a purchase with a credit card you have the option of withholding payment should you be unsatisfied with the quality of an item. This right is protected under the Fair Credit Billing Act. This federal law does not apply to debit card purchases. In summary it makes sense to use credit cards when ordering merchandise from the Internet or a catalog or for big-ticket items or expensive services. Debit cards are a great way to pay for everyday items such as gas or groceries. A debit card can also be a good money management tool if you’re diligent about recording every single transaction in your checkbook.
Fees
According to the Wall Street Journal one in five banks add a charge for each transaction completed by entering a PIN. Other fees are levied for minimum balance requirements, ATM use or even for having the debit card itself. The Board of Governors of the Federal Reserve estimates that 15% of all consumers with debit cards are subject to debit transaction fees. Therefore when you chose a debit card first find out what kind your bank offers and ask about the fees. If you chose to have overdraft protection, please refer to the overdraft protection article from DMCC for additional information.
DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt. Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email contact@dmcconline.org.
