In 1946, a Brooklyn banker named John Biggins acted on the premise that people with good credit should be granted a noncash means to make a purchase one day, but pay for it in the future, by creating the Charg-It card. Around two decades later, the Bank of Delaware shifted the debate to what types of noncash and noncredit alternatives should be available, and the debit card was born.
A debit card is the same as cash, so it’s important to think critically and make good decisions about its use. And, yet, too many people accept the debit card, which is pretty much issued automatically by their financial institution, without knowing how to best use it. To guard against that mistake, consider these debit card tips that will help you use your debit card wisely. Let's start with a little background.
Debit Card Function
The debit card is issued by financial institutions. The card’s “balance” equates to the funds that the cardholder previously deposited in their checking or savings account via cash or check, or by direct deposit of a third party or a bank account. Then, the credit/debit card electronic payment technology simply makes the personal funds of the cardholder available in a convenient electronic form.
When using the debit card, the cardholder pays for goods and services by deducting funds from his checking or savings account. The cardholder can also withdraw or deposit cash using an ATM.
On no occasion does debit card use mean its user taps a line of credit. Instead, their spending is constrained by their bank account balance, which equals the amount of money they've deposited with the card’s issuing financial institution.
Smart Tips for Debit Cards
Financial budget: You can use a debit card as a means to separate and control personal or business expenses, which can simplify filing tax returns. Likewise, you can use a card to separate a certain category of expenses, such as auto expense or a child’s allowance.
ATM access: As a debit cardholder, you may have the ability to deposit or retrieve funds via an independent ATM network, such as Allpoint or MoneyPass, or the network of your financial institution. Be aware that the risk of the attachment of a “skimming” device to an ATM is greater if the machine is located in convenience stores, airports and other places where the physical security is less than that of a financial institution. These devices capture your login credentials as you use the ATM to access your account.
Liability protection: The Fair Credit Billing Act (FCBA) and the Electronic Fund Transfer Act (EFTA) apply to credit, debit and ATM cards. The acts provide liability protection if you report the loss of a debit card before someone uses it. In this case, EFTA says you’re not responsible for unauthorized transactions. If an unauthorized person uses your card before you report it stolen or lost, the speed with which you report it governs your liability.
Read More: How to Limit Your Losses
The Federal Trade Commission website suggests that you take these steps to protect your debit card and thereby limit your liability:
- Don’t provide your debit card account number either by phone or by text to anyone unless you initiate the conversation.
- Safeguard your account information by storing it in a safe place, rather than jotting it down on paper and leaving it on your desktop.
- Document your card account numbers, expiration dates and the card issuers’ contact data so you can report a lost or stolen card quickly.
- Draw a line through blank spaces on debit charge slips above the total to prevent a change in the debit amount.
- Don't sign a transaction slip unless all fields are complete: vendor name, transaction date, description of transaction and card imprint.
- Save your valid receipts to check against your monthly statements and ask for, then destroy, erroneous ones. Doing so is key to debit card security.
- Destroy expired cards by cutting through the account number before you throw them out.
- Promptly review your monthly statement by comparing it to your receipts. Report discrepancies as soon as possible.
- Carry only the cards you'll need and lock away the rest.
- Commit your PIN to memory, rather than carrying it in your wallet, purse or pocket, or writing it down.
- Carefully check any debit card transaction before you complete it as the funds for this item are quickly transferred out of your account and to that of the designated recipient.
- Periodically review your card’s account activity by comparing the current balance and transactions on your statement to those you've recorded.
- Report discrepancies in your account activity to the card issuer immediately.
More Debit Card Tips
Card fees: A debit card’s issuing institution can charge a variety of fees. These fees range from a monthly service fee to a card replacement fee and from a monthly maintenance fee to an inadequate balance fee. The institution’s fees can vary from a little less than a dollar to the double digits for activating your card and allowing you to use an out-of-network ATM.
Other possible charges include a transaction fee for each purchase. So, it’s important to carefully consider different debit card options based on the financial institution’s disclosures about fees. Then, once you have your card, plan the card’s usage to minimize the fees.
Transaction Limits: The financial institution may place a dollar amount restriction on card transactions, including withdrawals, deposits or “reloads,” or payments. These restrictions are typically calendar-based, such as a $500 daily limit on cash withdrawals. So, plan your transactions accordingly.
Account Alerts: When you receive your debit card, enroll in the low balance alerts program to avoid overdraft fees. The financial institution's alert system will notify you by text or email when the funds of the account that's tied to your debit card fall below a certain amount. Otherwise, you might incur an overdraft fee.
Other useful alerts include those that alert you that your balance is more than a certain amount so you can transfer excess funds from checking to savings and one that notifies you of account activity that may be fraudulent. Also available is the direct deposit alert and the account profile change alert.
Read More: Debit Card Fraud Procedures
Moving Forward With Debit Cards
Debit cards grant you the convenience of plastic without the obligation of debt. These cards – funded by cash, rather than credit – are a convenient way to buy things and avoid carrying cash. While the cards have many benefits, such as providing support for your financial budgeting efforts, their use also incurs some costs, such as transaction limits and card fees. So, it’s important to plan your use of the card carefully.
- Time: Now You Know: What Was the First Credit Card?
- Kansas City Fed: A Guide to the ATM and Credit Card Industry
- Forbes: Credit Card, Debit Card or Prepaid Card: Which Is Right For You?
- Discover: Why Your Debit Card May Be the Secret to Building Good Money Habits
- PC Mag: How to Spot and Avoid Credit Card Skimmers
- FTC: Lost or Stolen Credit, ATM, and Debit Cards
- Washington State Department of Financial Institutions: Debit Cards Frequently Asked Questions
- Consumer Finance: Are There Limits on the Amount of Purchases, Reloads, and cash Withdrawals I can make with my prepaid card?
- US News & World Report: Bank Alerts You Should Use to Safeguard Your Bank Account
- Consumer.gov. "Using Debit Cards." Accessed July 16, 2020.
- Federal Trade Commission. "When a Company Blocks Your Credit or Debit Card." Accessed July 16, 2020.
- Element Federal Credit Union. "Debit Card Holds and Issues Explained." Accessed July 16, 2020.
- Consumer Financial Protection Bureau. "A Closer Look: Overdraft and the Impact of Opting-In," Page 1. Accessed July 16, 2020.
- MyFICO. "What Is Amounts Owed?" Accessed July 16, 2020.
- Federal Trade Commission. "Lost or Stolen Credit, ATM, and Debit Cards." Accessed July 16, 2020.
Billie Nordmeyer is an IT consultant of 25 years standing. As a senior technical consultant for SAP America and Deloitte Touche DRT Systems, a business analyst, senior staff, and independent consultant, Billie has worked across the retail, oil and gas, pharmaceutical, aeronautics and banking industries. Billie holds a BSBA accounting, MBA finance, MA international management as well as the Business Analyst and Software Project Management certificates from the Cockrell School of Engineering at the University of Texas at Austin.