Debit cards

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When you open a checking account you can expect the bank to include a debit card or, as some banks call it, a check card.

These cards give you additional flexibility when it comes to paying for purchases.

Traditional ATM cards only allow you to withdraw cash or perform other transactions at an automated teller machine.

Debit cards let you pay for purchases in stores. The money is taken directly from your account. There’s no “pay later” option with debit cards.

Debit cards at a glance

  • Money is deducted directly from checking account.
  • PIN-based cards provide protection against identity theft.
  • Liability if it’s stolen: $50 if you notify bank within two days; $500 if you notify bank after two days.
  • Fees: Some banks charge for use of debit cards.
  • Returns can be tricky, because retailers treat transactions like cash.
  • It is better to buy online with credit than debit.
  • Be careful not to overdraw your checking account.

PIN versus signature

Some debit cards require a personal identification number, or PIN; others simply require your signature. A PIN-based or direct debit card removes the purchase price from your checking account almost immediately. These debit cards are typically accepted at supermarkets, gas stations, drug stores and superstores such as Wal-Mart.

A signature-based or deferred debit card has a Visa or MasterCard logo and is accepted anywhere Visa and MasterCard are accepted. Just as you would with a credit card, hand the clerk your card, sign the sales slip and you’re done. The purchase price will be removed from your account in two or three days.

Some banks offer both types of debit cards, and some put both debit functions on the same card. When you swipe your card at the checkout line, the clerk will ask if you want to pay by debit or credit. If you select “debit,” you’ll need to key in your PIN. If you select “credit,” you’ll sign the sales slip.

Identity-theft protection

Consumer advocates often urge people to choose PIN-based direct debit cards only, since the PIN adds a layer of protection against identity theft. With a signature-based debit card, anyone could pick up the card and use it.

You have some federal protection if a thief gets your card and goes on a shopping spree, but you must act quickly.

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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.

Hidden fees

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.

Avoid overdraft

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’s special report on debit cards “Goodbye credit, hello debit.”

The next section gives a quick rundown of tips for using your debit card responsibly.