Debit Cards Aren't Credit Cards

When you go shopping, do you use cash, check or credit card? Maybe you are like millions of others and use a debit card.

Debit cards are a convenient way to pay for goods and services but if your debit card is ever stolen, you have to keep in mind that the thief has access to your cash. You also need to know that the rules are different for stolen credit cards vs. debit cards.

Susan McGinnis of CBS MarketWatch explains how the card works, how it differs from credit cards and what you can do to protect yourself.

You found the dress that fits so perfectly that it flatters the figure and you have to have it. And what is a dress without a pair of shoes to match?

You take them to the register to pay for them and when the cashier asks, "Will that be cash, credit card or debit?" You think about it for a second: "Don't have enough cash so not an option. Don't want to run up a balance on my credit card. Ummmm." So you answer, "Debit card."

How convenient. So convenient, in fact, that according to The Nilson Report, over 49 percent of U.S. checking account customers have them.

Last year, consumers have used their approx. 100 million debit cards to run up sales of $111 billion in off-line purchases. Debit cards can be used to withdraw cash from ATM machines (by using a PIN, personal identification number) and to make purchases, also known as off-line purchases.

Off-line purchases can be made with a debit card but a PIN is not always needed; it only requires a signature. On-line purchases require a PIN. Debit cards are a convenient form of payment because they allow cardholders to make a purchase by deducting that specified amount directly from their checking account. However, some stores allow you to make purchases that deduct from your savings account.

Consumers also should be aware that debit cards are different from ATM cards in that ATM cards can only be used to get cash from ATM machines. They are more secure than debit cards because they can only be used with a PIN at cash machines. They are not accepted for purchases.

Debit cards, on the other hand, look very much like credit cards. As a matter of fact, many consumers don't even know if what they have in their wallets is really a debit card or a credit card. That is, until after they have made purchases and then checks start bouncing because they thought they were charging when really they were deducting from checking.

CREDIT CARDS are another convenient option when making purchases because the card holder does not have to carry cash. Card holders can use them to charge anything and everything from toys to groceries. If the consumer does not pay off the balance each month, he runs the risk of finance charges that can exceed 20 percent. At the same time, if the card is ever stolen and is used for unauthorized purchases, it is the banks money and not your own. The liability charge for lost or stolen credt cards is limited to $50 by law according to the Federal Trade Commission.

DEBIT CARDS, also called check cards, work differently. Although they look much like credit cards, they aren't. They are accepted anywhere credit cards are accepted but they offer an advantage in that they don't charge interest. Payments are taken directly from your checking account.

In some cases, you can choose to have purchases deducted from your savings account. Consumers, instead of tracking their available credit line, as they do for credit cards, has to keep track of their available account balance when they use a debit card. Otherwise, no money in the account means no transaction, thus no purchase.

Credit cards and debit cards are both protected by the Federal Reserve Board Regulation for Electronic Fund Transfer Act under Reg-E. Reg Z also protects credit cards under the Federal Reserve Board Regulation under the Truth and Lending Act which implements regulation of credit cards.

The disadvantage of a debit card is that if it is ever stolen, the thief has access to your money. If a thief wanted to use an ATM card to get cash from your account, he would need a PIN number. To help avoid this, banks suggest that you not keep your PIN number in your wallet or on your card.

On the other hand, if the thief wanted to make purchases using your debit card, he would only need to forge your signature. That gives him access to your money to shop till the account drops. To protect yourself, report all lost or stolen debit and credit cards immediately.

According to the FTC, if a debit card is lost or stolen, the card owner has to report it within two business days and his liability will be limited to $50. Once the consumer receives his bank statement, he has between two and 60 days to report any discrepancies and notify the bank of his lost or stolen card. But then, his liability may be as high as $500.

If the card holder did not know that the card was stolen and found out three weeks later, when he received his statement, the rule is that within two days of learning of the loss, he has to alert the bank. And he will still only be liable for $50.

If he fails to alert the bank after 60 days of receipt of his bank statement, then he risks unlimited loss. That means the loss of all of his money as well as the line of credit for overdrafts. Some banks may even offer liability deals closer to credit cards. Negotiate. As long as you meet your time period, you will get your money back.

There is not much consumers can do to protect themselves but the FTC suggests that you always know where your cards are and keep them secure and be careful about giving out your number over the phone.

They also suggest that you keep your PIN secret and not in your wallet or on your ATM or debit card.

Always take your ATM and debit card receipts with you after completing a transaction.

Don't leave receipts or your account number in ublic places.

Also, always reconcile all purchases with bank statements as soon as possible. Bottom line, try to protect your card as best you can to avoid getting ripped off. And keep in mind that a debit card is much like carrying cash. So protect it accordingly.

There are some benefits for debit cards. For instance, if you have bad credit or can't get credit, then you can still purchase something quickly over the phone by using a debit card.

Budgeting is another advantage. Those who can't budget can use a debit card knowing that they have an internal limit on how much they can spend and won't exceed it.