Debit Cards: Good for Banks, Bad for You

Here's something to think about the next time you use your debit card. Did you need to use your PIN? Probably not. More and more people are using debit cards these days. They usually have a Visa or MasterCard logo on them. They look like credit cards, but they're not. Debit cards are a direct, and immediate link to your money. It used to be that the banks issued debit cards that were used just like an ATM card. Every time you used it, you would give your PIN number, which was your protection. A recent security breach at Citibank has let thousands of PIN numbers fall into some hacker's hands. But why is this even a big deal? Now days, you can choose to run your debit card through as "credit" (so-called "off-line debit transactions"). This allows the card to be accepted in more places and eliminates the expensive keypads, but guess what? It leaves the key to your money in the hands of anyone who has your debit card!

The biggest difference between a credit card and a debit card is that there is no one between a crook and your money with the debit card. With a credit card, VISA or MasterCard pay out the money, then in turn ask for you to pay it back. If there's a disputed charge, you have time and a pre-defined path to get it removed from your credit card. With the debit card, you may find that all of your money is gone before you realize there's a problem. Many debit cards say you're not liable (except for the first $50, aww gee...thanks) if you report your card stolen/lost immediately. That's great. Except it might take them a month or more to get the money back in your account. That sounds like a very fun month, doesn't it?

The bottom line is this, Debit cards are good for banks because they're cheaper to process than paper checks. They're bad for you because you have much less protection than a credit card. Maybe you should stop carrying a debit card and start using a credit card (oh..and pay it off too).