Using Plastic for Purchases may not be as Convenient as we Think
In the past decade we have witnessed the use of credit and debit cards increase significantly. In the 90’s over sixty percent of people used cash for the majority of their transactions and studies are showing that today that number is half what it was back then.
As people are beginning to become so much more reliant on plastic for purchases we have to start asking questions regarding the safety of this relatively new payment technique. Are our purchases really secure or are we just blindly walking into trouble without realizing it? As the use of debit and credit cards increases, it is imperative that we consumers stay on the lookout for the hidden costs and fees and the possibly security pitfalls that can we associated with these cards. Here are some common questions.
Is there more than one type of debit card?
Unbeknownst to most people there are actually two different types of debit cards, deferred and direct. The deferred card – or signature-based – is similar to a credit card minus the credit. This card requires you to sign for the purchase and then the money will be debited from your checking account within two to three days. A direct – or PIN-based – debit card requires that you punch in your PIN number every time you buy something and the money is immediately withdrawn from your account.
Which one is smarter to use?
Similar to ATM surcharges, direct debit card purchases may come with charges that will show up on your bank statement. Hidden fees, the result of the battle between retailers on one side and banks and credit card issuers on the other, can add up significantly. As a result, to reduce their expenses, many stores encourage PIN-based transactions and some stores no longer accept debit card purchases that require signatures. (ABC News)
When the consumer uses their personal identification number to make a purchase, the retailer usually pays a flat fee to the bank. However, when the purchaser opts to use their debit card as a credit card, which typically requires a signature, the retailer generally has to pay a percentage fee based on the amount of your purchase. Therefore, it is becoming more common for the retailers to encourage PIN-based transactions, and several are no longer accepting debit card purchases that require a signature at all.
This tactic results in $3.5 billion in lost processing fees for banks. To recoup this revenue, some banks have started to charge consumers a fee, generally between 25 cents and $1.50, for every PIN-based purchase. These fees are subtracted from your checking account along with your purchase. (ABC News)
What kind of protection do you have?
If your debit card gets lost or stolen (which has happened to the majority of us at one point or another), what kind of protection do we as consumers have? Unfortunately when it comes to our financial security debit cards do not provide the same piece of mind that credit cards typically do. The main difference has to do with the federal regulations regarding fraud liability. For most credit cards there is usually a liability cap of $50, which means that the consumer is responsible for the first $50 in damages and then the company will cover the rest of the damagers. However, when it comes to bank debit cards the liability cap can be as high as $500, requiring the customer to pay that amount out of pocket before the liability insurance kicks in for the remaining balance.
Will a debit card prevent you from over drafting?
Not all cards. Some debit cards will actually allow the users to overdraw and then hit then with overdraft fees that usually range around $35 a transaction. If you use a deferred debit card and simply sign for your purchases, many banks will let you exceed the checking account balance. The tip here is to balance your bank account like you do your check book. Keep track of your balance and your purchases. Do not depend on the mobile banking app to stay updated for you.
For more information on how using debit cards can actually have a negative impact on you financially visit ABCNews.com.