In a world of increasingly sophisticated technology, convenience often comes witha price. When it comes to debit cards, you need to judge for yourself if their benefits offset the potential risk to your financial security.
The evolution of the debit card
According to the November 1997 issue of Money magazine, more than 67 million Americans now carry debit cards, compared to only 13.4 million in 1992. The amazing thing is that you may have one without even knowing it. The difference is that debit cards not only can be used to access cash at ATM machines, but also to make purchases by debiting your bank account. The cards are generally accepted by businesses that honor major credit cards. You can tell if your ATM is a hybrid if it includes a credit card company logo in addition to your bank’s name.
The added security risk
So why are these combination cards less safe than standard ATM cards? When you use your ATM card, you enter a personal identification number (PIN). Without it, you are denied access to your funds. But, when you make a purchase with your debit card, all you need to do is sign a receipt — just as you do when you use a credit card. By forging your signature, a card thief could drain your bank account in one quick shopping trip.
In many cases, cards have been used fraudulently without the owners even losing them. By gaining access to your card number, someone else could make a mail order purchase, give your card number and your account would be debited for the purchase.
Understanding your liability
With most major credit cards, your liability for fraudulent purchases is limited to the first $50 if you report the transaction within 60 days of the statement date. These same issuers have recently stepped-up their efforts to increase security with debit card purchases. As of January 1998, some debit card issuers have reduced your liability to zero if you report the card lost or money missing within two days. If you fail to make a timely report, your maximum liability is $50.
However, under federal law, banks can take up to 20 business days to investigate a debit card fraud claim and return your money. If you are currently using a debit card, you may want to ask your bank about its policy for returning money caused by debit card fraud. You will also want to know your bank’s policy on checks you may potentially bounceas a result of fraud. If your bank doesn’t refund your overdraft fees, you may want to consider switching to one of the many banks that do.
Another precaution if you are a debit card user is to keep spare cash in a separate account not linked to your debit card. That way, you can limit your liability and have money available to pay your bills if you are a victim of debit card fraud and are waiting for your cash to be returned.
Gary N. Garner is a personal financial advisor with American Express Financial Advisors in Jackson.