What You Should Know 

What is the difference between a debit card and a credit card? While a debit card looks like a credit card, it works like cash or a personal check. You "pay now" rather then "later" as you do with a credit card. 

When you use a debit card, you are subtracting money from your own checking or savings account. You can use it in stores with a special card reader that electronically contacts your bank and debits your account. The amount you can spend is limited by the amount in your bank account. 

When you use a credit card, you are getting money, as a loan from a bank or other financial institution. Of course, you will have to pay back the credit that has been extended to you and the amount you can charge is determined by your credit history, income, debts, and ability to pay. If you pay back less than the full amount you owe on your monthly statement, you have to pay interest on the amount you don't pay back. 

Some cards are dual purpose credit/debit cards. Before you swipe the card through the reader, you select a "credit" or "debit" button on the reader. If you select "debit," you will need to enter your Personal Identification Number (PIN). If you select "credit," you will be given a credit receipt to sign. "Credit" charges will appear on your next charge account bill. "Debit" charges will be taken directly from your checking account. While the PIN may offer greater security against theft, you need to guard the number carefully. 

The bottom line: 
Before you get a debit card, you need to know its special characteristics and risks. What are the advantages of a debit card? It is often easier to get than a credit card. 

When you use a debit card, you don't have to get a check approved and show identification. 

You don't have to carry cash, a checkbook, or traveler's checks. 

Debit cards are more readily accepted than checks, especially when you are away from home. 

You don't pay interest charges. 

Because check-out lines move faster, store owners like debit cards. They don't have to worry about bounced checks or take checks or cash to bank. Debit card processing fees for the merchant are generally lower than credit card fees. 

What are the disadvantages of a debit card? You need enough money in your bank account to cover the bill. 

Since you have already paid for the purchase, you may have less protection than with a credit card for items that are never delivered, defective, or were misrepresented. 

Although you don't pay interest, you may have bank fees, such as monthly service charges, per-transaction costs, or penalties for dropping below your required minimum balance. 

How do you protect your debit card? 

Because the debit card is like a blank check, you need to guard it carefully against loss or misuse. A thief can clear out your bank account before you even know your card is missing. 

If you card is lost or stolen, or if you think it is being used fraudulently, call your bank immediately. Follow up the phone call with a letter. 

For all debit card transactions, hold on to your receipts. A thief can get your name and debit card number from a receipt and order goods by mail or over the telephone. The items could come out of your bank account before you knew about it. 

Memorize your PIN and don't keep it with your card. Don't choose one that a smart thief could figure out, like your phone number, address, or birthday. Never give your PIN to anyone. 

What if your debit card is lost, stolen, or misused? 

The most you can lose is $50 if you report to the issuer that your card is lost or stolen within two days of the time you discover the loss. However, your liability increases to a maximum of $500 if you make the report within 60 days after you receive your bank statement. 

If you fail to notify your bank within 60 days after you receive your bank statement, your liability is unlimited so you could lose all the money in your account. Check your bank statements carefully and promptly for unauthorized charges. There are major debit card issuers that provide more protection and some state laws cap your total loss at $50.00. 

What is the difference between "on-line" and "off-line" transactions? 
"On-line" debit cards are like ATM transactions. You enter your PIN after swiping the card through the card reader. Funds are then immediately transferred from your account to the merchant's account. 

With "off line" transactions, you swipe your card at the store and sign a receipt like a credit card sale. The system checks your account to see if you have money and debits your account. However, the money to pay for the transaction isn't deducted from your checking account for a couple of days. 

Because banks charge different fees for on-line, off-line, and check transactions, think about which type of transaction will be the least costly before you use your debit card. 

For More Information 

The National Consumers League (NCL) This organization has a brochure that explains the difference between credit cards and debit cards. URL: www.natlconsumersleague.org/debitbro.htm 

Better Business Bureau The Better Business Bureau offers tips on using debit cards. URL: www.bbb.org/library/19990204.asp 

Nolo Press This publisher of self-help legal materials, provides tips on what to do if you lose your debit card. 
URL: www.nolo.com/encyclopedia/articles/dc/debitcard.html 

EDIC Consumer News Spring 2000 A guide to using cash, checks, and credit cards or debit cards. 
URL:www.fdic.gov/consumers/consumer/news/cnspr00/index.html