Debit cards and credit cards may seem interchangeable at the checkout stand, but don’t let that fool you— the cards are stacked in favor of credit cards when it comes to your protection against unauthorized charges.
Federal law caps your liability at $50 if you report your debit card lost or stolen within two days. After two days, your liability jumps to $500, and waiting more than 60 days after your statement is sent to report unauthorized charges could leave you on the hook for the entire amount of the loss. By comparison, your liability in the event of unauthorized credit card charges tops out at $50.
The differences don’t stop there. With credit cards, you can withhold payment of the amount in dispute while the fraud is investigated, but debit card transactions withdraw funds directly from your bank account, leaving you temporarily out of pocket for that amount. By law, banks can take up to 10 days to investigate and restore your funds. In the meantime, you could be facing bounced checks and an empty wallet.
Fortunately, federal law isn’t the last word on this issue. Visa and MasterCard require debit card issuers to extend more generous protections, and many banks voluntarily restore funds much more quickly than the law requires.
The conveniences offered by debit cards are undeniable and, as compared to credit cards, they encourage a more disciplined approach to spending. The following tips will help you continue to enjoy the benefits while minimizing the risks:
- Check bank statements carefully and promptly—remember that unauthorized charges can occur even if the card itself was never lost or stolen.
- Use your debit card only with merchants you trust—reach for your credit card for online purchases or transactions where the card will be out of your sight (e.g., restaurants).
- Limit your exposure—don’t link accounts if you don’t need to. Linking your savings account to your debit account could result in both accounts being drained.
- Report loss, theft or unauthorized charges immediately—acting fast limits your liability.
- If you only use your debit card to withdraw cash from ATM machines, consider asking your bank to replace it with a basic ATM card. This ensures that a PIN will be required for all transactions.