Debit Cards vs. Credit Cards: Fees and Fraud Protection
On the other hand, many people are concerned that debit cards may generate overdraft fees and offer less legal protection against unauthorized charges. Are these valid concerns?
According to Consumer’s Union "a person using a debit card more than 20 times a year pays an average of $223 in bounced check fees. The one who doesn’t use a debit card at all pays an average of $40."
You can avoid these fees with some thoughtful planning. Here are some great tips from Bankrate.com:
Most banks provide "convenience" overdraft protection -- which is basically a high-interest loan to cover the shortfall in the account -- a consumer who's trying to manage money responsibly could get hit with a fee of around $35.
Be sure to note all debit transactions in your check register and sign up for overdraft protection linked to your savings account to be on the safe side.
Consumers should also ask their banks in what order payments are made. Ask where you can find information on nonsufficient funds. Most banks manage payments by paying the largest items first and on down to the lowest. If your biggest item overdraws your account, you'll pay an NSF fee for every subsequent check or debit.
Keep in mind the average American pays $1,200 a year in credit card interest fees. If you minimize your overdraft fees with the basic precautions listed above, you will most likely pay less fees by using a debit card.
Protection Against Fraudulent Charges
One of the major benefits of credit cards is that they offer generous protection against unauthorized charges. Under federal law, debit cards do not have the same level of protection as credit cards.
However, many debit card issuers are offering extended liability protection to make up for the legal differences. As MSN pointed out, "in effect, check cards now have the same protections as credit cards." I wanted to verify this for myself. Since Visa is one of our sponsors I was able to get a very quick response back from their spokesperson:
Despite the popularity of debit cards, consumers are often confused about the security features and consumer protections debit cards offer. Many of the same features and protections provided by credit cards are also offered with debit cards. It’s important to know that Visa debit cards carry the same protections as Visa credit cards.
All Visa cardholders (prepaid, debit or credit) are protected by Visa’s Zero Liability policy.
This policy means you pay nothing if unauthorized purchases are made on either a Visa Check card or credit card when you choose to sign for your transactions. Some issuing financial institutions offer Zero Liability protections for certain PIN debit transactions as well, but the best way to ensure you are protected is to sign for your purchases. Visa’s Zero Liability policy actually surpasses protections mandated by federal law, which in most cases caps liability at either $50 (for credit) or $500 (for debit).
Of course, cash is almost always better than debit or credit cards. And as Nora pointed out, there are many great reasons to use credit cards such as building up credit rating and earning reward points. However, if overdraft fees and fraud protection were holding you back from switching to debit cards, perhaps it is time to take a second look.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any bank, card issuer, airline or hotel chain.