A debit card is a plastic card that provides instant access to your checking account. It is issued by the financial institution that maintains your checking account.

How does it differ from a credit card?

A debit card takes funds directly out of your account.

You have two choices when you use a debit card at a POS (Point of Sale) terminal.

You can use a PIN (Personal Identification Number) to authorize the transaction or you can sign a receipt to authorize the transaction. When you use a PIN, funds are transferred immediately from your account. (This is also called an online debit card.)

When you sign a receipt, funds are transferred from your account within one or two days (this is similar to what happens when you write a check). (This may be called offline debit or signature debit.)

 What are the advantages of a debit card?

• It may be easier to get than a credit card.
• You don’t have to carry cash.
• You don’t pay interest charges.

 What are the disadvantages of a debit card?

• You need enough money in your bank account to cover each purchase.
• You have less protection if something goes wrong with your purchase.
• You may have bank fees for dropping below your bank’s required minimum balance. (Check with your bank to find out about any charges that might apply.)
• You have less protection if your debit card is lost or misused than with a credit card.

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

• If you report that your card is lost or stolen within two business days to your bank or credit union, the most you can lose is $50.
• Your liability increases to a maximum of $500 if you report within 60 days after you receive your bank statement.
• If you do not report a loss within 60 days after you receive your bank statement, your liability is unlimited. You could lose all of the money in your account.
• If you report a lost or stolen card by phone, you should also send a letter to your bank or credit union. You should include your account number, when you noticed your card was missing, and the date you first reported your loss.
• Once you have reported the loss of your debit card, you cannot be held liable for unauthorized transfers from your account.

 How should you protect yourself against fraud or loss?

• Know where your debit card is at all times.
• Keep your PIN (Personal Identification Number) a secret.
• Do not use numbers from your address, birth date, phone, or Social Security number for your PIN.
• Be cautious about providing your account number over the phone.
• Do not sign a blank charge or debit slip.
• Check your receipts against monthly bank statements.
• If you bank online, check the activity in your account every other week or so. Compare withdrawals with your receipts to be sure that no one has obtained access through your account.

 What is blocking?

• When you use a debit card (or a credit card) to check into a hotel or rent a car, the clerk usually contacts the company that issued your card to give an estimated total. If the transaction is approved, the balance in your account is reduced by that amount. That is a “block.” Some companies call this pacing a “hold” on those amounts.
• If you pay with a different card than when you checked in or rented the car, the “block” may be held for up to 15 days. Remind the clerk that you are using a different form of payment. 

 Resources

AARP. Credit and Debt: Understanding debit cards
http://www.aarp.org/money/credit_debt/a2002-08-14-ManagingMoneyDebitCards.html

Federal Trade Commission. Credit, ATM and debit cards: What to if they’re lost or stolen.
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre04.shtm

Federal Trade Commission. Credit and debit card blocking
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre11.shtm

Garman, E. T. & Forgue, R. E. (2006). Personal finance. 8^th edition. Boston. Houghton Mifflin Company. Chapter 5. Management of Monetary Assets, pp. 127-152.

Checklist for using a debit card

     ü  Always know where your card is located such as your wallet or purse.
     ü  Keep your debit card PIN (Personal Identification Number) a secret.
     ü  Check your debit card receipts against your monthly bank statement.
     ü  Report a lost or stolen card as soon as possible.