Which are safer for purchases: credit cards or debit cards?
Credit cards. By a mile.
When I say debit card I mean check cards or ATM cards with the credit card logo on them (MasterCard or Visa). Don't use them for purchases. Why? Buying something on your debit card pulls money right from your checking or savings account (obvious, right?). Well, this can lead to these problems.
1. Card blocking. Some retailers, including gas stations, hotels and rental car companies, will block a card in advance of the transaction clearing. Some will block using a default value for every purchase. If you buy $10 worth of gas, your checking account might have $75 blocked! Several days may pass until it is unblocked. So if your balance is low, you might end up bouncing checks or causing costly overdrafts--and have no idea why.
2. Fraud results in no fund access. When your debit card is used fraudulently, it's your money that has been pulled, not your card issuer's. With credit card fraud, the criminals are playing with the card issuer's money. Your maximum liability for credit card fraud is only $50 by Federal law—this is governed by the Fair Credit Billing Act. Debit cards are governed under a different federal law: the Electronic Funds Transfer Act. And if you don't report debit card fraud within 60 days, your liability could be as high as 100%! To make matters worse, no matter what the situation, if you're fighting to recover from debit card fraud, the bank is holding your funds in the meantime. That's your money--and your bank balance is that much lower. You might be bouncing checks all over the place or be unable to pay bills on time, when you did nothing wrong.*
3. Huge fees. Banks earn huge fees on debit card transactions. Consumer advocates are up in arms about this. Apparently, when you use your debit card with a PIN, some banks charge you a special point of sale fee. And when you use it as a credit card, they charge merchants a lot--even though there's much lower risk than credit cards.
My recommendation: don't own a debit card. Sure, have an ATM card by all means (it's protected by a PIN and only works at ATM machines). So if the bank sends you an ATM/debit card with a MasterCard, Visa or Discover logo, turn it down. Ask for an ATM card only.
* Note: Both MasterCard and Visa have a zero-dollar fraud liability policy and they do apply that voluntarily to debit cards with their logo. But the criminals still are using your money, not the bank's.
All that is nice, but there is the interest thing. People are really going bankrupt due to CC debt, at least when it is your money you've already earned it.
Posted by: James Deville | Mar 05, 2006 at 06:23 PM
James,
You are right: Excessive credit card debit is a huge problem. People are living beyond their means and spending far too much on the high credit card interest rates. I agree that debit cards do have the positive aspect that you are spending your money, and if you're out of money, that's it. You can't keep borrowing and borrowing.
Posted by: Tom F | Mar 05, 2006 at 07:03 PM