First State Bank

10 Occasions NOT to Use a Debit Card

They may look just like credit cards, but debit cards have different protections and uses. Sometimes they’re not the best choice.

Reaching for your wallet is like a multiple-choice test: How do you really want to pay? While credit cards and debit cards may look almost identical, not all plastic is the same.

It’s important consumers understand the difference between a debit card and a credit card. There’s a difference in how the transactions are processed and the protections offered to consumers when they use them. With debit cards and credit cards, each payment method has advantages, and each is also better suited to certain situations. Here are 10 places and situations in which it can pay to leave that debit card in your wallet.

1. Shopping online

Don’t use your debit card when shopping online. A debit card links directly to a checking account, “you have potential vulnerability” if you have problems with a purchase or the card number gets hijacked. For the same reason, avoid using your debit card for phone orders.

The Federal Reserve’s Regulation E (commonly dubbed Reg E), covers debit card transfers. It sets a consumer’s liability for fraudulent purchases at $50, provided the customer notifies the bank within two days of discovering the card or card number has been stolen. Most banks have additional voluntary policies that set their own customers’ liability with debit cards at $0. 

But the protections don’t relieve consumers of hassle. The prospect of trying to get money put back into their bank account and the problems a lower-than-expected balance can cause in terms of fees and refused checks or payments make some online shoppers reach first for their credit cards.

2. Big-ticket items

With a big-ticket item, paying with a credit card is smarter. Why? A credit card offers dispute rights if something goes wrong with the merchandise or the purchase. With a debit card, you have fewer protections.

In addition, some credit card benefits include extended warranties. And in some situations, such as renting a car, some credit cards also offer additional insurance in case of an accident.

Remember when paying with credit cards, don’t carry a balance. Otherwise, you also risk paying some high-ticket interest. 

3. Deposit required

When renting equipment at a big-box store, it may require a sizable deposit. This is where you want to use a credit card instead of a debit card.

With a credit card, the store has its security deposit, and you still have access to all the money in your bank account. With any luck, you’ll never actually have to part with a dollar.

4. Restaurants

The next time you’re dining out, stop and think about what could happen if you hand over your debit card when the check comes.  

For those few minutes you let your debit card out of your sight, it could easily be run through an illegal handheld reader. Then the card is returned to you and you’re blissfully unaware your information has been compromised. Of course, this identity-theft scenario is also possible with a credit card. The difference is that debit cards offer a lot less protection against unauthorized transactions than credit cards, mainly because the money is being taken directly out of your bank account.

Fortunately, some restaurants in the U.S. are following Europe’s lead and adopting tableside payment systems in which the wait staff brings the restaurant’s card reader to you.

Until that technology comes to your favorite restaurant, pay with your credit card instead of your debit card. You’re not eliminating the risk, but you’re using a payment method that makes it a lot easier to take corrective action against unauthorized charges.

5. You’re a new customer

If you’re a first-time customer in a store (online or in brick-and-mortar shop), skip the debit card the first couple of times you buy.  That way, you get a feel for how the business is run, how you’re treated and the quality of the merchandise before you hand over a card that links to your checking account.

6. Buy now, take delivery later

Buying now but taking delivery days or weeks from now? A credit card offers dispute rights a debit card typically doesn't. Be aware some credit cards will limit the protection to a specific time period, so settle any problems as soon as possible.

7. Recurring payments

We’ve all heard about the gym that won’t stop billing an ex-member’s credit card. Now imagine the charges aren’t going onto your card, but instead coming right out of your bank account.

Another reason not to use the debit card for recurring charges? Your own memory and math skills. Forget to budget for that automatic bill payment one month, and you could either face fees or embarrassment (depending on whether you’ve opted to allow overdrafts or not).

So if you don’t keep a cash buffer in your account, to protect yourself from over-limit fees, you may want to think about using a credit card for recurring payments.

8. Future travel

Book your travel with a debit card, and they debit it immediately. So if you’re buying travel you won’t use for six months or making a reservation for a few weeks from now, you’ll be out the money immediately. Booking on credit allows you to pay off the balance over time, if necessary, for an expensive trip.

Another factor is hotels aren’t immune to hackers and data breaches, and several name-brand establishments have suffered the problem recently. 

9. Hotels and holds

Some hotels will place a hold on your card to cover any unexpected costs or expenses that don’t immediately show up on your itemized bill. Sometimes holds or deposits can be in the hundreds of dollars to make sure you didn’t empty the minibar or trash the room.

A hold is almost unnoticeable if you’re using credit but can be problematic if you’re using a debit card and have just enough in the account to cover what you need. It helps to ask about deposits and holds before you present your card.  

10. Gas Stations and holds

Some gas station companies also will post holds on accounts. That means even though you bought only $10 in gas, you could have a temporary bank hold for $50 to $100, although that practice isn't as common today as it was back when gas prices were high.

© 2019 First State Bank. All rights reserved.