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When not to use a debit card
Watch those late payments

When not to use a debit card

Last reviewed: October 2009

In-store shoppers now rely more on debit cards than credit cards to make purchases. But if you're using your debit card for shopping this holiday season, here are some dos and don'ts you need to know.

Don't use debit cards for big purchases

They don't offer the same protection that credit cards do. Credit cards allow you to reverse or dispute charges, and some will even extend the length of warranties.

Do watch what you spend

Or you could get hit with nasty overdraft charges. New laws that restrict overlimit fees on credit cards don't apply to overdraft fees on debit cards. And banks often enroll debit customers automatically in overdraft protection programs, which can carry an annualized interest rate that exceeds 3,500 percent.

Don't use a debit card online

If you use a credit card, your liability for unauthorized charges is capped at $50, no matter what. If your debit card is lost or stolen, it must be reported within two business days to limit liability to $50. If a lost or stolen debit card is reported within 60 days, liability can go up to $500. If an unauthorized transaction is not reported within 60 days of the statement date (and the card hasn't been reported lost or stolen), you're on the hook for charges made after the 60th day until the report is made.

Do click on "credit" and sign for payments instead of giving a PIN

Card companies might extend the same zero-liability protection to debit cards as they do to credit cards if the debit cards are processed like the latter, but PIN transactions might not have that protection.

Don't link your debit card to an account with a lot of money

Thieves can empty your debit-card-linked checking account, so keep just enough in the account to cover current purchases.

Don't use prepaid cards

Often labeled as debit cards, they have even skimpier fraud protection than debit cards and carry lots of fees, including dormancy and monthly fees. If you plan to give money as a gift, hand over cash instead.

This article appeared in Consumer Reports Shopsmart Magazine.

Posted: October 2009—Consumer Reports Shopsmart Magazine issue: November 2009