5 Ways to Dodge Debit Card Disaster

Ensure Your Debit Card is a Smart Alternative to Credit or Cash

Whether it’s to avoid carrying a lot of cash or a response to the dramatic changes in the credit card industry of late, people are turning in ever increasing numbers to debit cards as a primary source of spending money. In 2010 alone, an estimated 40 billion debit card transactions will be completed. This can be advantageous to consumers in many ways, provided the potential pitfalls of debit cards are fully understood and avoided.

1. Be Your Own Overdraft Protection
Overdraft protection provides piece of mind, but often not for the consumer. A recent New York Times article mentioned that banks are looking to pocket $27 billion in overdraft fees this year alone. This protection, after all, is really just another form of credit, allowing customers to dip below the cash they actually have in their accounts to avoid potential embarrassment of having misbalanced their checkbook.
If overdraft protection is truly needed, it is just as easy to leave a set amount of money in an account, but omit it from the checkbook journal and forget it is there. This will provide a cushion of real cash to protect the account holder from an overdraft without going into debt or paying a fee.

2. Know Your True Balance
One of the ways that debit cards can confuse is in the way banks report the current versus the available balance either online or on an ATM receipt. Here, it is best to assume that the available balance is the most accurate, as it may include charges made to a debit card within that business day.
That said, care should be taken in determining what a bank includes in the available balance, as some include the amount of overdraft protection in the available balance, even if that means a customer would pay handsomely for using what’s technically “available”, not to mention being out of money and in debt to boot.

3. Don’t Try To Time Your Deposit
Banks are winning when customers play the game of running multiple transactions the same day they expect a deposit to hit. Banks not only hold deposits for several days before allowing them to clear, some are also changing the chronological order of transactions each day so that the most expensive transactions run first, often causing multiple overdraft transactions. For example, if a customer has $500 in an account and transactions that day in the order of $35, $100, and $550, they could be reordered as $550, $100, $35, causing the customer three overdraft fees rather than just one.

4. Be Secure
Debit cards are linked directly to a customer’s account and extra care should be taken when these cards are used. When withdrawing cash, use an ATM located at a bank, rather than free standing machines at convenience stores or other locations. Bank ATMs are much less prone to skimming devices used by crooks to swipe your account information.
Wherever a card is used, debit card purchases should be processed as a “credit” transaction, not a “debit” transaction where a PIN is required.
Most importantly, check accounts often for accuracy. Most banks offer some level of fraud protection, but how quickly they are notified of the fraud dictates how protected a customer truly is.

5. Don’t Lock Up Your Money
Avoid using debit cards when on the road, especially when paying for a hotel room or rental car. These businesses will insure their property is safe by selecting an amount to block on the customer’s account in case of damage. This can be as much as twice the expected transaction amount. So, if a hotel room is to cost $500 for a two-night stay, the hotel may block the customer from using as much as $1,000 in available cash. When in doubt, communicate in advance and find out what the policy is for debit card transactions.

Stay Tuned – Congress in Session

With the overwhelming popularity of the recent legislation involving the credit card industry, politicians will likely be sure to continue that momentum when it comes to the debit card industry. While this is likely to positively impact the consumer, attention should be paid to what the changes are, how they affect the consumer specifically, and what changes the banks make to counteract the legislation to make up any lost income.

By Chip Workman
cworkman@taaginc.com