Wednesday, August 10, 2011
How do credit cards compare to bank debit cards?
Half of all US consumers surveyed recently by TransUnion said they use their bank's debit card to pay for most of their purchases, but debit card fraud is increasing. Many of these same consumers reported that they fear becoming a victim of identity theft or fraud. How easy is it for someone to get your debit card information and help themselves to cash?
In case of loss or fraud
With both credit cards and ATM or debit cards, the key to quick recovery and low liability is how quickly you report the loss. If you report a credit card loss before the cards are used, under the Fair Credit Billing Act you aren't responsible for any unauthorized charges. If you report an ATM or debit card missing before it's used without permission, the Electronic Funds Transfer Act provides that the card issuer cannot hold you responsible for any unauthorized transfers. But the cards differ here: if you don't report the loss of an ATM or debit card within two business days after you discover the loss, you could lose up to $500 because of an unauthorized transfer. You also risk unlimited loss if you fail to report an unauthorized transfer within 60 days after your bank statement containing unauthorized use is mailed to you.
Cash vs. debit cards
Making purchases with cash, like debit cards, won't lead to finance charges. But cash can be lost or stolen and can never be recovered. A lost or stolen card, on the other hand, can immediately be reported to limit possible liability.
Debit card vs. ATM-only card
Most banks will issue you an old-fashioned ATM-only card, that allows you to withdraw cash from an ATM but unlike debit cards, don't operate on credit card networks. If lost or stolen, an ATM-only card is useless to a thief who doesn't also have your PIN code.
All payment methods have benefits and drawbacks. But from a fraud standpoint, the amount of liability for fraud losses may be lower with credit cards. To avoid piling up debt if you’re going to use it for daily purchases, apply for a new, low limit card and pay off what you’ve charged every month.