Forbes had a good rundown on bank debit cards recently. They’re Visa and MasterCards that immediately hit your checking account when you “charge” something. They’re like paperless checks — so convenient you don’t even have to key in a PIN when you buy something.
Forbes panned these cards for three reasons. First, of course, you lose the “float.” (You also lose the frequent flier miles some credit cards offer.) That is, the money leaves your checking account instantly. With a credit card, the average interest-free float is around 40 days if you pay your bill within the allotted grace period. (The grace period may be 25 days, but the average charge was made in the middle of the month, so it’s 15 days before it even hits your bill.) Second, “you lose the option of withholding payments — important leverage in case of disputed charges.” And third, “it could give a thief carte blanche to your checking account.”
I don’t know whether Carte Blanche is still a credit card — it used to compete with Diners and American Express — but credit-card puns aside, the point here is important. With a credit card, your liability is usually limited to $50, and while there may be some hassle in straightening things out, a lost card is mainly the card-issuer’s problem. You get a bill in the mail for $18,320 in charges, none of them yours, and you don’t pay it. With a debit card, you would get your checking account statement and notice that $18,320 in bogus debits had been sucked out of your account, pushing you to the limits of your “overdraft-checking” privileges, for which you’re charged 18% annual interest, and causing checks you wrote to bounce. In short, you’re busted.
Yes, you’d eventually get that $18,320 added back into your account and straighten everything out, most likely. You might even get the overdraft checking interest and the bounced check charges reversed. But it would surely be more trouble than just declining to pay an $18,320 Visa bill.
(Forbes warns that some thieves take a more subtle approach to exploiting your stolen debit card. Say a thief gets the account number off a discarded receipt, then has a phony card made up with your number. Now, rather than charge $18,320 all in one spree, he occasionally uses it for small purchases you might not notice. Until you do notice and cancel your card, you’re buying him gasoline, sweat socks, the occasional dinner, books and CDs at Barnes & Noble — whatever. And when you finally do notice, you may only be reimbursed for fraudulent charges incurred within the last 60 days.)
Avoid bank debit cards. Carry only a few credit cards at most, instead, and be sure to pay them in full each month to avoid incurring interest. Check your credit card statements carefully and reconcile your checking account statement promptly when it arrives each month. (Computer programs like Quicken and Managing Your Money make this easy once you get set up.)
When your bank sends you a new ATM card to replace your old one, with the great news that “now you can use it for purchases, too — as easy as a credit card, but with no interest to pay!”. . . see whether they’ll let you cut it up and provide you with a plain old ATM card instead.