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5 Good Reasons to Avoid Debit Cards

This article was written by in Credit. 18 comments.


I have two checking accounts. One is with Wachovia, which has been my main checking account (through bank mergers and acquisitions) for the last 15 years or so. The other is with ING Direct, which is a more recent development.

Both checking accounts have provided me with debit cards which can be used to access the accounts at ATMs or for purchases. Once I started getting my finances in order, I stopped using debit cards for purchases and started using credit cards. Some of the reasons for doing so are discussed in a recent MarketWatch article. Here are MarketWatch’s four reasons, plus one of my own.

Double funds tie-up. Gas stations pre-authorize your account before pumping and the bank places a hold on those funds. This hold does not disappear when the “true” charge is authorized. If you plan your checking account close to the hilt, which I used to do, this can result in unintended overdrafts. Now I have enough available funds to keep a buffer in my checking account, but I shouldn’t have to. Sometimes the pre-authorization hold is only $1, but some stations may re-authorize as much as $50. If you use a credit card, there is no “hold” and only the true charge affects your available balance.

Can’t dispute debits. MarketWatch notes that some banks have started to offer consumer protections for the debit cards, but they still don’t come close to what is offered for credit cards. Here’s an example from the article:

A friend of mine recently bought three bottles of her favorite Scotch in a Mexican airport duty-free shop. The shop didn’t deliver the goods to the plane before take-off, and she went home empty-handed. She was able to successfully dispute the charges. Good thing she used a credit card.

If she used a debit card, she would not have her money back in her account until the investigation was complete. That’s an unacceptable situation for me.

Can’t rent a car. This is probably the most basic argument against those who try to convince others that life would be better entirely without credit cards. You can’t rent a car with cash. You should be able to, and maybe there is a rental company somewhere that will allow debit cards for the initial deposit required for reserving a vehicle, but it’s incredibly uncommon.

Theft protection. The article points out that a the owner of a stolen credit card is liable only for $50, but the owner of a stolen debit card can be liable for much more — and if the card is used by a thief, the money will still be deducted from the true owner’s bank account pending the investigation. Take a look at this:

The bank has up to 10 business days — and up to 45 if an investigation is required — to restore your balance. And if you take more than 48 hours to report a lost card, your liability limit is $500, not $50. Worse yet, if you fail to report a loss within 60 days of a bank statement showing the fraudulent transaction, your loss is unlimited.

It’s definitely helpful to be on top of your finances and report stolen cards immediately, but these days, card numbers can be stolen without the owner’s knowledge and used in a number of places where no signature or PIN is necessary.

Here’s a reason of my own, not mentioned in the articles.

Rewards options. Right now, the ING Direct Debit Card is offering 1% cash back, but cash back rewards with debit cards are few and far between. You can do much better starting with these cash back credit cards. Of course, if you pay any interest or late fees at all, this reason quickly becomes invalid as the fees outweigh the rewards.

If you find that whether using debit cards or credit cards, you spend more than you should, the best option is to find a way to always have cash on hand and save the credit card for only when necessary (like reserving a rental car as mentioned above).

Do you prefer debit cards or credit cards? The only situation in which I can presume that use of a debit card is better than a credit card is if you will be concerned about your credit score in the short-term and you spend close to your credit limit on a monthly basis. Frequent debit card user may be able to explain other benefits that credit cards do not offer, so feel free to share.

Updated February 6, 2012 and originally published July 2, 2007. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 18 comments… read them below or add one }

avatar Steve

Renting a car with a debit is only a problem if you try to rent from your home airport. That can be an inconvenience if you need a car in the middle of the night. Other than that I’ve rented plenty with debits.

The other protections sound important, but I really can’t be bothered to pay another bill. I’d rather just deposit as needed.

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avatar klerg

Debit cards definitely keep me in check as far as my spending goes so for me personally, that’s the biggest benefit. I never keep more than one month’s expenses in my checking account ($1700-1800). It’s got a small rewards program that gives me cash back, but on debit purchases only. And I go to great lengths to insure that my debit card is NOT attached to my 5% yielding savings account.

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avatar dee

Car rentals: You can use a debit card to rent a car at Dollar Rent A Car, however, a credit check is done prior to the rental.

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avatar John

> Debit cards definitely keep me in check as far as my spending goes

I agree with klerg. Although the 5 scare-scenarios *COULD* happen, it’s much more likely that I myself will go over my budget with a credit card.

Also, I feel that when I charge stuff to my BOA check card, it shows up on my statement instantaneously (just like the TV ad says) which helps me keep a day-to-day tabs on my budget.

As for theft protection, I keep less than $500 in the check account at any time, which I refill weekly using a automatic recurring transfer (also instantaneous). This limits the “theft protection” scenario threat.

Lastly, the conspiracy theorist in my thinks that the big credit card companies WANT us to think debit/check cards are bad so they can keep us hooked. No thanks!

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avatar Luke Landes ♦127,435 (Platinum)

John and others: So if you keep at most $500 in your checking account to maintain your spending on your debit card, how is that different than keeping track of how much you spend on a credit card and limiting that to $500? If you have insufficient funds on your debit card, most banks now charge an overdraft fee rather than rejecting the debit. With this overdraft fee, the theft protection scenario is back to unlimited.

It’s possible to control your spending to $500 per week, whether it’s with a debit card or a credit card… With a credit card, if you run into an emergency and have to go beyond the arbitrary $500 limit, you’re not penalized (as long as you are within your total credit limit). With a debit card, you’ll be charged an overdraft fee or you’ll be unable to make the purchase.

I do also agree that there are elements of scare tactics in play, but only so much as general public relations and not quite a conspiracy. There are scare tactics on the other side as well, in the form of statistics saying those who use credit cards overspend… The numbers go so far, but it comes down to the individual.

Steve: I understand about limiting the number of bills to pay. That’s a great point and it can go far to simplifying your financial life. Bills can equate to stress which can lead to health (and therefore financial) strains.

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avatar tinyhands

Reason #6- Play the float.
Debit transactions are processed the same day, while credit cards only have to be paid at the end of the month/billing cycle. You don’t have to be living paycheck to paycheck to have a cash management strategy that involves holding onto your cash (and earning interest) as long as possible.

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avatar John

> how is that different than keeping track of how much you spend on a credit card

In my experience, it’s different because of the the longer delay in transactions posting to the account with credit cards) vs. instantaneous with my check card. Also I get a daily email alert showing the remaining balance on my debit card on my blackberry, so I can count on always knowing where I’m at on my weekly budget. If it dips below

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avatar John

(previous comment got cut off)

> how is that different than keeping track of how much you spend on a credit card

In my experience, it’s different because of the the longer delay in transactions posting to the account with credit cards) vs. instantaneous with my check card. Also I get a daily email alert showing the remaining balance on my debit card on my blackberry, so I can count on always knowing where I’m at on my weekly budget. If it dips below 100usd, I do an online transfer (I realize this may be inconvenient for some).

For bigger purchases, I use my rewards Credit Card. I also use the rewards card for some recurring monthly bills. So I’m not totally against them. Just against using them for the many small transactions that add up by the end of the week.

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avatar MikeVx

Debit cards are handy if you want to avoid the credit issue for most things. The big problem with debit cards is when you have a card that connects to an account that does something other than hold money for debit card spending. I have two debit cards, tied to special-purpose accounts. Other than the occasional small check for a magazine subscription or such, the accounts are card-only. Important bills should never be paid on an account with a debit card attached.

I find that the clearance time is the same with debit cards and credit cards, but then I don’t do PIN transactions. One of the purposes of PINs is to give the bank ammunition to summarily dismiss debit card fraud complaints. “Your PIN, your charge.” I use them strictly in credit mode, then if there is ever a PIN-based transaction, it is fraud by definition: “This is the first PIN-based transaction other than deposits since I got the card.”

I keep a small amount in the accounts for recurring transactions and random stuff. For large transactions, I keep the money in savings and transfer it in a few days before the transaction. Hotel stays for example.

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avatar steev

Maybe debit cards work differently where you guys are, but most of these rules don’t apply anymore. My bank’s debit card is a Visa. Let’s go over those points again:

1. Funds tie up: I’ll admit, I use public transportation, so I don’t know anything about this. I’ll trust you on this one.

2. Can’t dispute debits: Yes, you can. It works just like disputing any other charge.

3. Can’t rent a car: At any place that lets you rent on a Visa, my card will work.

4. Theft protection: Visa has a Zero Liability policy in the case of theft or fraud.

5. Rewards options: My bank has a points system that is used with its cards that give me money back on purchases.

Reason 6, as submitted by tinyhands: This is true. Debits can take between one to three days to post to my account. Not as much float time.

Anyway, I think that most of this relates to the fact that my card is, well, a ‘hybrid’ card. I have no clue if that’s the right term, but I can use it as either a debit card or a credit card. It will work both ways. Both simply take money out of my account.

I don’t know a bank around here that doesn’t offer its ‘debit card’ as one of these hybrids. I haven’t seen a pure debit card since I was 12. (I’m sure this dates me…ha)

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avatar Luke Landes ♦127,435 (Platinum)

Steev: If a fraudster uses your debit card or debit card number, the funds for that transaction are automatically deducted from your linked bank account just as they would for a transaction you initiate. If someone finds my debit card number and drains me out, any bills that happened to be scheduled for automatic payment will fail or overdraw the account. You can dispute the charge, but the bank will not give you your money back until later… regardless of whether there’s a Visa logo on your debit card or not. Unless you went to Visa to get your debit card, it was issued by the bank, and the Visa logo appears to show that will work on the Visa network as a credit-like transaction (with a signature required) as well as a debit-like transaction (with your PIN).

Visa may offer additional protections, but not enough to fund your account immediately if you suspect your number was used by someone else. With a credit card, you’re dealing with the issuer’s money until you pay the bill.

What you’re thinking of — those cards without the Visa or Mastercard logo that were issued by the bank and linked to your bank accounts — are generally called “check cards” now to distinguish them from the dual-mode “debit cards.” Those “check cards” required a PIN number for each transaction and did not operate over the Visa network. I haven’t seen one of those in many years, either.

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avatar Moneymonk

I have to agree with all of those reasons except for the duty free shopping

I have rented cars, dispute transactions and had theft protection, not sure where marketwatch have their resources. Not true with me. I always use my debit card for Gas and never a double ties.

Compare to the traps credit cards get you into. I will always use debit

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avatar Moneymonk

I meant I have to disagree with all the reasons except for duty free shopping

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avatar Don

I don’t know where MarketWatch is trying to rent cars but I have had no difficulty with the big agencies and have used my debit card at Avis, Dollar, and Budget. They DO encumber $250 or $500 until I return the car but I do not keep my checking account balance so low as to matter.

Further, using my debit MC from USAA means I get a percentage rebate on that car rental.

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avatar Luke Landes ♦127,435 (Platinum)

Don: The rental companies must have changed their rules at some point. Several years ago — before I was using credit cards for their rewards — those same companies would not accept my debit card (with Visa logo, operating on the Visa network) for placing the reservation, though the debit card could be used for payment on return of the car. Perhaps this is a decision left up to the individual franchise, not the corporation…

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avatar Kara

Simple thing I work for one of the companies that does accept debit cards. ( personally I disagree with that decision) I can understand the consumer having issues on the deposit issue, but recently I rented a post hole digger to put up a new fence in my yard the daily rate was $80.00 and the deposit was $350.00 on my credit card (they do not accept debit cards) so I presented my card and was told that the deposit needed was $350.00 I did ask what was he cost of the machine and was told that the one I was renting was around $400.00
So next time you are asked for your debit card and the car rental company wants a 300 to 500 dollar deposit think of your self as lucky. We do not require you to leave a $10,000 to $20,000 deposit and the debit card only means you have a bank account that has some money in it.
In my locations we typically have 10 rentals go bad per month (never paid) other then the deposit, or 2-3 cars we never get back. Those losses as you can understand get passed on to all customers as higher daily and weekly rates.

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avatar thomas

i don’t ever use my debit card. i get along just fine with my amex and visa. i’m responsible enough (and check my balance enough) to not over spend my budget.

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avatar Joy

The car rental issue depends on your location. Many places in NYC will absolutely not rent you a car with a debit card, other areas are not so strict.

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