Making all of your purchases with a debit card is a good way to avoid spending more money than you have and racking up debt. But it’s not always the smartest way to pay. In fact, using a debit card at some places or in some instances can be dangerous.
That’s because debit and credit card transactions are processed differently. And the protections aren’t quite the same.
Under federal law, your liability for unauthorized credit card transactions is capped at $50. You’re not responsible for any unauthorized transactions if your card number — rather than the card itself — is stolen, according to the Federal Trade Commission.
You’re not responsible for unauthorized debit card transactions if you report that your card is missing before someone uses it. Otherwise, you must report unauthorized charges within two days of learning that your card is lost or stolen to limit your liability to $50.
If you wait more than two days, you could be liable for up to $500 in unauthorized charges. After 60 days you could be on the hook for all unauthorized transactions made with your card, according to the FTC. Unlike with credit cards, you have to report unauthorized transactions with your debit card number within 60 days of your statement being sent to you to avoid liability.
So to protect the money in your bank account, here are eight situations when you should think twice before using your debit card.
Your chances of having your card information stolen is greater when you make purchases online because a number of e-commerce sites have been compromised, said John Breyault, vice president of public policy, telecommunications and fraud at the National Consumers League. Plus, you could easily have viruses on your computer that can capture your information as you enter it online.
If a thief were to get your debit card information, you could contest any unauthorized charges. But that money typically isn’t available to you while the bank is investigating your fraud claim, Breyault said. With a credit card on the other hand, those funds would still be available while the card company investigates.
When you check into a hotel it’s not certain what final amount you will owe when you check out will be, due to restaurant charges or other fees charged to your room. So hotels will place a hold on a certain dollar amount above the room rate, said Nessa Feddis, senior vice president of consumer protections and payments with the American Bankers Association.
If you pay with a debit card, you won’t have access to those funds temporarily, which could cause problems if you don’t have sufficient money in your account or didn’t plan on spending more than the room rate, Feddis said.
Restaurants, like hotels, may authorize a higher dollar amount than your actual bill under the assumption that you’ll leave a tip, Feddis said. It could take a few days for the actual amount — rather than the hold amount — to appear on your account balance.
However, a bigger reason to avoid using a debit card at a restaurant is that you are letting it leave your sight while the server takes it away to be swiped, said Bryan Jardine, director of fraud prevention solutions at security provider Easy Solutions. During that time, your card information could easily be stolen.
Gas station pumps
When you swipe your debit card at the pump, you’re authorizing the gas station to withdraw money from your bank account — but not a specific amount because the authorization occurs before you actually fill your tank, Feddis said.
The gas station could, for instance, get authorization for $75, when you only end up pumping $25 worth of gas. However, there could be a hold on that $50 difference for up to a few days as the transaction is being processed — leaving you without access to that money, she said.
Gas stations also are targets for crooks that install devices on pumps to capture debit and credit card information as consumers swipe their cards — a process called skimming. They even install miniature cameras to view your PIN as you enter it. Then they can create counterfeit debit cards to drain your account. You won’t be on the hook for fraudulent transactions if you report them quickly, but you might not have access to your money while the issue is being resolved. To avoid putting your card information at risk, Feddis said, pay inside the gas station for a specific dollar amount before you fill your tank.
ATMs at non-bank locations
Incidents of card and PIN skimming at non-bank ATMs — such as those located in convenience stores, hotels, restaurants or bars — soared 317 percent during the first four months of 2015 compared with the same period a year ago, according to credit scoring agency FICO.
These ATMs typically aren’t monitored well, and owners of the establishments where they’re located usually aren’t trained to spot tampering, Breyault said. So it’s best to avoid using your debit card to withdraw cash from one of these ATMS to lower your risk of having your card information skimmed.
Bank ATMs that look “off”
ATMs at banks also are big targets for thieves that install skimming devices. In fact, compromises at bank-owned ATMs were up 174 percent the first four months of 2015 compared with the same period in 2014, according to FICO.
Before inserting your card into an ATM, look for signs that it might have been tampered with, including anything that’s loose, crooked or damaged, according to the FBI. If something doesn’t look right, don’t use it. Instead, the FBI recommends using ATMs inside banks because they are less accessible to criminals looking to install skimmers.
Swiping your debit card at a self-service kiosk to pay for things such as parking or public transportation can be risky because these machines could easily be tampered with, Feddis said. If you notice anything suspicious –such as a card reader that is loose or poorly fitting — don’t proceed with a transaction.
Vacation rental properties
There are plenty of vacation rental property scams with the aim of getting travelers to hand over payment for fake listings. That’s why you don’t want to offer debit card information — which is a direct link to your bank account. Vacation rental listing sites such as HomeAway.com and VRBO.com recommend using a credit card as the most secure way to book a vacation rental because of the protections it offers.
Even legitimate properties require security deposits, so you might not want to tie up money in your bank account by using a debit card. Or you might have to pay in installments. Breyault said it can be easy to forget when you agreed to be charged for your installments, which could create problems for your account balance if you’re paying with debit.
Think twice before linking automated payments for things such as magazine subscriptions or gym memberships to your debit card. “Small dollar payments that fly under the radar are so easy to forget,” Breyault said. As a result, you might not to remember to budget for them and there won’t be enough money in your account to cover them. Then you can get hit with overdraft fees.
“All of this comes with a caveat,” Breyault said. “If you’re going to use a credit card instead of a debit card, you need to do your best to pay the balance off each month.” Regardless of which card you use, check your statements regularly for unauthorized charges and notify your financial institution immediately if you see any.