10 places NOT to use your debit card

Debit cards' differences sometimes make them the wrong choice

By Dana Dratch

10 places NOT to use your debit card

10 places NOT to use your debit card


Sometimes 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 that consumers understand the difference between a debit card and a credit card," says John Breyault, vice president of public policy, telecommunications and fraud for the National Consumers League, a Washington, D.C.-based advocacy group. "There's a difference in how the transactions are processed and the protections offered to consumers when they use them."

While debit cards and credit cards each have advantages, each is also better suited to certain situations. And since a debit card is a direct line to your bank account, there are places where it can be wise to avoid handing it over -- if for no other reason than peace of mind.

Here are 10 places and situations where it can pay to leave that debit card in your wallet:

10 occasions NOT to use a debit card

They may look just like credit cards, but debit cards work differently, and aren't always the best choice. Some times you may want to avoid them include:

  1. Online
  2. For big-ticket items
  3. When a deposit is required
  4. At restaurants
  5. If you're a new customer
  6. When you buy now, take delivery later
  7. For recurring payments
  8. For future travel
  9. Hotels and holds
  10. ATMs and pay-at-pump gas stations

1. Online
"You don't use a debit card online," says Susan Tiffany, retired director of consumer periodicals for the Credit Union National Association. Since the debit card links directly to a checking account, "you have potential vulnerability there," she says.

If you have problems with a purchase or the card number gets hijacked, a debit card is "vulnerable because it happens to be linked to an account," says Linda Foley, who founded the Identity Theft Resource Center in 1999. She also includes phone orders in this category.

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 they notify the bank within two days of discovering that their card or card number has been stolen.

Most banks have additional voluntary policies that set their own customers' liability with debit cards at $0, says Nessa Feddis, vice president and senior counsel for the American Bankers Association.

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 that a lower-than-expected balance can cause in terms of fees and refused checks or payments, make some online shoppers reach first for credit cards.

2. Big-ticket items
With a big-ticket item, a credit card is safer, says Chi Chi Wu, staff attorney with the National Consumer Law Center. A credit card offers dispute rights if something goes wrong with the merchandise or the purchase, she says."With a debit card, you have fewer protections," she says.

In addition, some cards will also offer extended warrantees. And in some situations, such as buying electronics or renting a car, some credit cards also offer additional insurance to cover the item.

Two caveats, says Wu. Don't carry a balance. Otherwise, you also risk paying some high-ticket interest. And "avoid store cards with deferred interest," Wu advises.

3. Deposit required
When Peter Garuccio recently rented some home improvement equipment at a big-box store, it required a sizable deposit. "This is where you want to use a credit card instead of a debit," says Garuccio, former spokesman for the national trade group American Bankers Association.

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

4. Restaurants
"To me, it's dangerous," says Gary Foreman, editor of the frugality minded website The Dollar Stretcher. "You have so many people around."

Foreman bases his conclusions on what he hears from readers. "Anecdotally, the cases that I'm hearing of credit or debit information being stolen, as often as not, it's in a restaurant," he says.

The danger: Restaurants are one of the few places where you have to let cards leave your sight when you use them, though some restaurants are working on changing that. But others think that avoiding such situations is not workable.

Anecdotally, the cases that I'm hearing of credit or debit information being stolen, as often as not, it's in a restaurant.

--Gary Foreman    
The Dollar Stretcher   

The "conventional advice of 'don't let the card out of your sight' -- that's just not practical," says Tiffany.

5. You're a new customer
Online or in the real world, if you're a first-time customer in a store, skip the debit card the first couple of times you buy, says Breyault.

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 that a debit card typically does not.

"It may be an outfit you're familiar with and trust, but something might go wrong," says Breyault, "and you need protection."

But be aware that some cards will limit the protection to a specific time period, says Feddis. 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, says Breyault.

8. Future travel
Book your travel with a check card, and "they debit it immediately," says Foley. So if you're buying travel that 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 that bothers Foley: Hotels aren't immune to hackers and data breaches, and several name-brand establishments have suffered the problem recently. Do you want your debit card information "to sit in a system for four months, waiting for you to arrive?" she asks. "I would not."

9. Hotels and holds
This one depends on the individual business. Some hotels will place holds on your card to cover any unexpected costs or expenses that don’t immediately show up on your itemized bill. There are sometimes holds or deposits in the hundreds of dollars to make sure you didn’t empty the mini bar or trash the room. The practice 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, says Feddis.

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

10.  ATMs and pay-at-pump gas stations
Possible holds aren’t the only reason to pause before using debit at gas stations. Criminals are getting better at disguising skimmers and making them harder to detect in places such as gas station self-service pumps says Kara Gunderson, point-of-sale manager for Citgo Petroleum Corp. Skimmers can also hide in ATM machines on bank property, says Foley.

"The devices are being found at small merchants, large merchants, urban, rural, new and old convenience stores, so nobody is exempt," says Gunderson.

Fortunately, most ATMS and fueling stations have until October 2017 to update their systems to be EMV compliant, which means they will be able to process encrypted chip cards. For consumers using chip cards, ATM and terminal upgrades will make it harder for card skimmers to copy card any data they steal.

For now, take a good look at the machine or card reader the next time you use an ATM or self-check lane, Foley advises. Does the machine fit together well or does something look off, different or like it doesn't quite belong? Says Foley, "Make sure it doesn't look like it's been tampered with."

See related:  Getting a refund tougher if you buy with debit card,  Paying for a rental car with debit card: 9 obstacles, Gas buyers fume at debit card 'holds'

Updated: September 12, 2016

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Updated: 10-27-2016

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