Under the Electronic Fund Transfer Act, your liability
is capped at $50 if you notify your bank within two business days
of learning that your debit card is missing. Wait more than two
days and you could be liable for $500. Both Visa and MasterCard
have a "zero liability" if your card is used fraudulently.
The catch is that guarantee is good only if the transaction is processed
over their networks. If not, then the liability terms are set by
the institution that issued your card, and those terms would be
equal to, or better than, the terms established under the EFTA.
Watch out for fees with a debit card. Some banks charge debit card customers a monthly
fee, others charge a fee on each debit transaction and some charge
a fee if you use a PIN for a purchase instead of signing for it.
Another potential issue with debit cards is returns. You may have
trouble getting a refund for merchandise that you decide to return,
because many retailers treat a debit card purchase the same as a
personal check or cash. You could end up with store credit instead
of a refund.
When you make a purchase with a credit card you have
the option of withholding payment if you're not satisfied with an
item. That right is protected under the federal Fair Credit Billing
Act, but this law doesn't apply to debit card purchases. The moral
may be to use debit cards for small purchases and credit cards for
big ticket items.
It's also a good idea to use credit instead of debit
when buying online because, again, your rights during a dispute
are considerably stronger with a credit card.
Keep in mind that it can be easy to overdraw your checking account
when using a debit card. Write a check and you've got the register
right there to enter the transaction. Use a debit card and you're
relying on your memory to remember to deduct the purchase later.
Devise a system of putting the receipt in a place where you know
you'll be reminded to update your checking account register.
Be sure to read Bankrate.com's special report on debit
credit, hello debit."
The next section gives a quick rundown of tips for
using your debit card responsibly.