checking

Check card problems to watch for

Check cards have increased in popularity this decade because consumers like the ability to manage their money effectively in a convenient and secure way. But there are a few aspects that consumers need to be aware of so that they don't become problems.

Check card downsides
  • Account overdraft
  • Transaction limits
  • Blocking
  • PIN versus signature

Account overdraft

Common sense says that your spending is limited to the amount you have in your checking account. But with overdraft protection plans, you can keep spending and may not even know you've overdrawn your account.

The biggest risk of using a check card, also called a debit card, is that consumers can overdraw their checking accounts. And because 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.

"You can overdraw your checking account just as easily with a debit card as by writing a check," says Greg McBride, CFA, senior financial analyst at Bankrate. "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, says Tim Sloane, director of the Debit Advisory Service at Mercator Advisory Group, a payments-industry research firm. "Ask where you can find information on nonsufficient funds, or NSF. 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."

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Blocking

Hotels, gas stations and rental car agencies routinely withhold an amount on a credit or check card until the transaction is processed. Those funds are unavailable to the consumer until they are "unblocked." For example, if a driver buys $10 worth of gas with a check card, the gas station may, as a rule, block $50 per sale. Consumers could accidentally overdraw their checking accounts if they didn't know what amount had been blocked.

"Be aware that gas stations and rental car agencies may block a certain portion of your balance for a few days until the transaction is posted," warns McBride. "If caught unaware, cardholders could inadvertently overdraw their accounts. If your balance is running low, using a debit card in such instances could backfire."

 

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