For many, part of a frugal holiday-shopping strategy includes a plan to leave the credit cards at home and use a debit card at the checkout.
The cards are attractive since they link directly to bank accounts. Early this year, debit passed credit cards in dollar volume spent. But before using debit cards, make sure you understand the risks to your budget or if they are lost or stolen.
Do debit-cards make it easier to stick to a budget?
Not necessarily. The $35 billion banks collected in overdraft fees last year should serve as a warning that yes, you can overspend with debit purchases. The median overdraft penalty is $35, and while some banks have stopped the practice, many allow multiple overdrafts to pile up.
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Several studies have found that carrying cash - especially large bills - helps curtail spending, but there's little evidence that translates to debit.
Is there a bigger risk if debit cards are stolen?
Some advocates for the victims of identity theft warn against ever using them. That's because if you lose the card or your account is otherwise compromised, thieves could have access to your entire bank balance.
Both debit and credit cards offer protections against unauthorized use, but legally and in common practice there are more safeguards for credit card holders.
And even in cases where debit card users are protected, in some circumstances it could take nearly two weeks to get their account balance restored.
Both MasterCard and Visa pledge that customers with debit cards bearing their logos have zero liability if their accounts are misused. But those promises do not apply in all cases. For instance, MasterCard does not cover transactions that involve the use of PIN numbers, and Visa doesn't cover any ATM withdrawals, or transactions not processed by its own network.
How can I protect myself?
1. Empty your wallet: Make sure you aren't carrying any cards you don't need.
2. Don't let your card out of your sight: Don't use your debit card in places like restaurants or bars, where it's taken away to process the transaction. There's a bigger chance that it could be put through a "skimmer," a device thieves use to read the information on the card.
3. Be cautious when using ATMs: Freestanding, nonbank ATMs are more vulnerable. And even bank machines can have skimming devices attached. Thieves may also plant tiny cameras in hard-to-notice spots to record your PIN number as you punch it in. If something seems unusual, don't use the machine.
4. Protect your PIN: Take a look around to make sure no one is watching before using an ATM or entering your PIN. Cover your hand if you must.
5. Be on guard online: Make sure your security software is up-to-date, and avoid shopping on sites that don't have a bright green banner in the address bar when you're checking out. That banner indicates the site meets the industry standard for online safety.
6. Check your account balances frequently: If there are suspect transactions, contact your bank or credit union right away.