Debit cards are one of the worst ways to use your money if you want your identity protected.
Because it’s linked directly to your bank account, anyone with your card information can instantly withdraw all the money from your account.
If that doesn’t scare you enough, there’s the fact that debit cards don’t have near the amount of protections that credit cards do.
And there are protections that many consumers need. Credit and debit card fraud totaled $4.5 billion in 2016, though new computer chips on cards are expected to help drop that to $1 billion in 2020, according to a report by Iovation, a provider of digital intelligence for fraud prevention.
Downsides of Debit Cards
If you’re not near a bank or ATM machine, debit cards can be easy ways to get some cash back when you’re buying something at a store. And if you don’t want to carry a lot of cash around, a debit card can be used like cash to pay for something.
A debit card is also a smart way to avoid one of the top headaches that can come with using a credit card — paying interest on the balance if you don’t pay the bill in full every month. Debit cards pull money directly out of your bank account, while credit cards advance money for a month on purchases, up to a credit limit.
A debit card allows you to only spend what you have, while a credit card can allow you to sink into debt.
While a debit card can be seen as safer than carrying cash, it can be more costly if a thief steals it or your personal information to use your debit card to empty your bank account.
If your credit card is lost or stolen, or the information on it is stolen, you can’t lose more than $50 in unauthorized transactions. The same is true for an ATM or debit card if you report it within two business days, according to the Federal Trade Commission. You won’t be responsible for any unauthorized withdrawals if you report the card missing before someone uses it without your permission. That’s the good news.
But it can get much worse with a debit or ATM card, the FTC says, if unauthorized use happens before you report it.
If you report a debit card loss within 60 days after your statement is mailed to you, you could lose up to $500 in unauthorized transfers. If you don’t report it within 60 days, you risk unlimited loss. You could lose all of the money in that account and the unused portion of your maximum line of credit for overdrafts. The thieves could overdraft your account if you wait more than two months to report it.
Once you report the loss or theft of your debit card to the card issuer, you’re not responsible for additional unauthorized use.
Credit Card Protections
If your credit card number or credit card is stolen, federal law offers a simple protection: You’re liable for up to $50 in authorized transactions. That comes with one important caveat — you must report it to your credit card issuer.
Some issuers won’t charge you the $50 and are vigilant about being on the lookout for fraud and alerting customers when they see potential credit card fraud.
How Your Information is Stolen
In addition to data hacks such as at Uber and elsewhere that should have consumers worried about their personal information being used by thieves, criminals can hide skimmer devices inside gas station pumps to steal credit and debit card information.
When using a debit card, which can also be used at an ATM to withdraw cash from your bank account, use bank-affiliated ATMs. They have a higher level of security than independent ATMs at gas stations or other businesses. Be sure to cover the keypad when entering your information.
Shred your bank and credit card statements so that thieves can’t pull your data from your trash and check your statements daily to make sure all of the transactions are legitimate.
More Ways to Protect Yourself
If you can limit yourself to only spending as much as you can afford, then only use a credit card and put your debit card away. Only use your debit card for cash withdrawals, since a debit card offers much less financial protections than a credit card if stolen.
Don’t open emails that come from someone or a site you don’t know or already do business with. Phishing emails often use a phony website to lure victims to give up their card or bank account numbers, so never give such information to anyone who asks for it that you don’t trust.
Sign up for fraud alerts from your bank and credit card company. If you think you’ve been the victim of identity theft, institute a credit freeze to prevent anyone from opening a new account in your name.
To further protect your identity and credit, consider signing up for an identity theft protection plan. An identity theft protection service provides 24/7 monitoring and sends you alerts of any suspicious activity.
Aaron Crowe is a freelance journalist who specializes in personal finance writing. He owns two personal finance websites, including CashSmarter.com where he writes about his family’s finances. He can also be found at AaronCrowe.net.