Debit card 101

Debit cards can be confusing. Many rules and fees often go along with them. In this article I will be highlighting a few important facts about debit cards and how they differ from credit cards. Although debit cards look like credit cards, they don’t work the same way. A debit card is more like a check. When you use it, money is immediately taken out of your checking account. With a credit card, the purchase is billed to your account and you make monthly payments to pay off the debt. Interest is applied each month until the balance is paid in full.

Debit cards are very convenient. They can be utilized in two ways, by signature or by PIN (personal identification number). Using your PIN to purchase items is also known as an “online” debit card transaction.

The second way that your debit card can be used is with a signature. This is called a signature-based, or “off-line” transaction, and is generally used at stores when you press the credit button. Sometimes, a store will not make you sign for a credit purchase it if is under a certain amount, but it is still seen as a signature transaction.

Both credit and debit cards offer fraud protection; the specific protection depends on the individual bank’s policies. The U.S. Government’s Electronic Funds Transfer Act protects debit card users after the first $50 of fraudulent spending, provided that the card holder reports the fraudulent charges to the bank within two business days after learning of the loss.

Most banks have their own fraudulent purchase protection or “zero liability” plans, and you should learn your bank’s rules and amount of protection. PIN-based purchases may not be covered by the bank’s zero liability because of the need to use a PIN. (Your PIN number is supposed to be a secret code to your funds. Never write your pin on the card or on a piece of paper labeled “Debit Card PIN”.) So it is best to know the stipulations for the Zero Liability Clause.

Also, always remember that your debit card is tied directly to your bank account. Check your statements often to make sure that all of the purchases are yours. It is very important to understand your bank’s policy on debit PIN purchases. Sometimes certain banks will charge a fee to use the PIN option when purchasing items. So check your bank’s policy. Holds on your debit cards can be very alarming. They are used in situations where the final amount of sale cannot be known right away such as with hotels, gas stations or restaurants. Businesses ask the bank to put a certain amount of money on hold while your transaction is being processed. While no money actually leaves your account until the purchase clears, the money being held is not available for other charges. If you are making other purchases, it is essential you know how much money is available in your account. It can be easy to overdraft if you keep a low amount of funds in your accounts. If something happens to your account, you should always check with the merchant who sold you the item and with your local bank. It is best to keep receipts so that you can show proof of the transaction. If you are unable to resolve the issue on the local level you can contact: Board of Governors of the Federal Reserve System Division of Consumer and Community Affairs, 20th and C Streets, N.W. Stop 801, Washington D.C., 50221.

If you have any questions about budget and credit, call the Home Repair Resource Center at 381-6100 and we will be happy to assist you. The Home Repair Resource Center is located at 2520 Noble Road Cleveland Heights, OH 44121 and www.hrrc-ch.org.

Allison has been with Home Repair Resource Center for over 6 months and is enjoying meeting Cleveland Heights/University Heights residents.