Check card problems to watch for

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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.”


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.”

Per-day limit on transactions

Does your bank have a limit on the amount of money you can debit per day or the number of transactions?

Most banks set check card daily spending limits based on an individual’s account, so you may have to call the bank to find out what your limit is. Citibank posts its daily limits on its Web site: For a Gold account, it’s $2,000; for Everything accounts, $2,000; all others, $1,000. Bank of America lets each customer set his or her own daily limit.

Most credit unions have the daily spending limit posted clearly on their Web sites and the limits generally range from $1,000 to $3,000.

PIN versus signature

As Bankrate’s Check Card Survey shows, few banks charge a transaction fee for using a check card. For merchants, it’s a different story: They pay a higher fee, called an interchange fee, when buyers sign for purchases than when they use a PIN.

The card issuers want consumers to sign for their purchases rather than using a PIN, even though PINs are more secure. To encourage signature use, banks offer reward programs (which are not as generous as credit card rewards programs), most of which award points only for signature purchases.

“Signature-based debit transactions are less likely to incur fees and may offer rewards such as cash back, depending on your card,” says McBride. “Given the choice, a signature, or pressing ‘credit,’ is the better way to go.”

While merchants pay a higher fee to a bank for signature transactions, it may be offset by the fact that the average signature check card transaction is $42, while the average PIN transaction is $38, according to the Federal Reserve.

The difference to consumers is whether they sign the sales slip or type in a PIN when they use a check card. What’s really going on is the way the transaction is processed. PIN transactions take money from your account via the electronic fund transfer, or EFT, networks, such as NYCE, Pulse, Interlink or Star. Signature purchases go through the Discover, Visa or MasterCard networks, just like a credit card.

With a PIN transaction, the money is immediately deducted from the checking account. With a signature transaction, it may take two to three days for the transaction to be processed.

In the past, most Internet or phone purchases with debit cards were signature purchases, and PIN purchases were made in person. However, recently the EFT networks have introduced PIN-less debit transactions for telephone and Internet shopping. Visa’s “Verified by Visa” program allows cardholders to sign up for a PIN for shopping online, adding another layer of protection.

“If you take a look at where most debit cards have been lost, they’ve been lost in physical stores,” says Sloane. “The risk is equal between credit and debit on the Internet, other than the time it takes to restore the money to your account. But loss is more likely to happen in a physical store.”

When consumers know the possible problems they could encounter with check cards, they’ll be able to more effectively manage their money, which is usually their goal with check card use.