How to Protect Yourself if You Use a Debit Card

We've already covered why I like credit cards more than debit cards and one of the reasons is financial security. But now that I joined a credit union to get a high-interest checking account, I HAVE to use a debit card for 10 transactions per month. So I'm looking for the safest way to use a debit card -- and Clark Howard happened to recently share his thoughts on how to protect yourself if you use a debit card. The details:

If you are someone who would be financially devastated if your bank account were emptied, I suggest you open a second account and tie your debit card to it. Then fund the second account only with money that's used for debit card activity, so your principal account won't be at risk in the event of a breach. That's the best way I know to protect yourself.

To me, this plan:

• Seems like it would work.


• Seems like it would be a huge hassle to set up and manage.


• Seems like it would get me interest only on the relatively small amount (otherwise, why bother?) I'd have in the debit card account -- which is contrary to my strategy in the first place (which is to get the 4% interest on a decent-sized balance.)

So my questions to you debit card users are as follows:

• Does anyone do anything like this?


• Is it really that big of a deal? If you're careful do you really have any sort of security issues?


• Anyone ever had their debit card stolen? What happened?

Comments

[ParatrooperJJ]

Just use a credit card, they are much safer.

[Apex]

Some things just aren't worth the hassle and for me that includes any benefits tied to a debit card. I had a bank recently require 10 debit card transactions to keep from charging a fee for the checking account. That account is now closed. Maybe that was their goal. If so, they were successful.

[Jenna]

I have been a dedicated debit card user for years now - in fact I almost never carry cash anymore. From my experience, while Mr. Howards's advice sounds prudent, it also sounds like a huge pain. Over the 10+ years I've had and used my card, I have only had 1 instance of security issues. My husband’s card number was obtained somehow (he never left or lost his card) and was used in several fast food restaurants and a gas station thousands of miles from our home. We caught it a couple of days after it happened and immediately called our bank to dispute the charges. Because we were able to show activity in our home state during the same time period, they refunded us the total amount of the fraudulent charges the next day and issued my husband a new card. For preventative measures, we don’t use our debit cards when purchasing items online (stick to either credit cards or prepaid cards for that). The upside to debit, is that unless sometime obtains your card and PIN they can't access any other accounts associated with you.

[kjaxx]

We do not do this, but we normally charge everything to a credit card (and pay the balance at the end of the month.)

My husband has used his debit card only a handful of times in the past two years and we've had two unauthorized charges in that time that necessitated canceling the card. Interesting to note that during these charges the card did leave his physical possession and his sight. Luckily our bank (USAA) was very helpful in getting these incidents resolved.

I would recommend maintaining possession of your card during its use (i.e. don't hand it to a cashier for scanning or to a waitress to go scan out of your sight.) And not using it to pull money out of stand alone ATMs (go inside the bank or get cash back) to minimize your chances of getting skimmed.

I don't think it would be that much of a hassle if you automated the account transfers. If you know roughly what you spend in a month, you could automatically have that transfered to your debit card account. If something extra comes up you could always transfer more. We don't hold very much in our checking account so any interest earned or not earned is not an issue for me.

[dcs]

I would make very sure, in writing if possible, that there is absolutely no overdraft loan protection on the account with the card, and no automatic transfer from another account to cover overdrafts. Some banks do that transfer automatically for a small fee and I don't know if that is opt-in-only now under the new banking laws so I would make absolutely sure.

For me, having to have $10k attached to a debit card is one of the reasons I decided not to open one of those accounts.

[mdb]

This is just 2 accounts. I have a savings and a free for life checking account. Checking account earns 0% interest. Savings I could probably do better now, but I don't worry about it. The debit card is tied to checking. I can transfer money when I pay bills with electronic checking, I leave about $50 in the checking in case I need to use my debit card, I hardly ever use it - it is not required. All the money earns interest and is safe in my savings. It really quite easy, I hardly ever write checks (2 a year for taxes and maybe 1 other one), but if do, I just log in and transfer the money. Personally, I think this is easier than making sure I use my debit card 10x.

[Matt]

I also have switched over from using a debit card for everything to using a credit card to earn the cash back. That being said I did open a high interest checking to boost my return and it has a debit card transaction requirement.

In the many years that I used a debit card, I think it was compromised twice(Actually, far less than my credit cards have been for some reason). It was caught immediately and just like a credit card you are not held liable for fraudulent charges. The only hassle involved is dealing with your bank and potential paperwork. For example, my Wells Fargo account was compromised and they called me and said they suspected fraud, I confirmed which charges were mine and they immediately credited my account and sent me new cards. When it happened at another bank, I had to fax a signed letter and wait a week, yada, yada. In the end, the result was the same.

I don't think it's worth opening another account to protect against that.

I'm also assuming that when you say you have to use a debit card you can use it for credit transactions, i.e. not PIN based transactions. My bank counts those towards my requirement and I suspect yours does, too. I can't speak for PIN-based transactions and the protections afforded you under those.

[kjaxx]

@Matt RE: liability
Per the FTC site "Your liability under federal law for unauthorized use of your ATM or debit card depends on how quickly you report the loss. If you report an ATM or debit card missing before it's used without your permission, the EFTA says the card issuer cannot hold you responsible for any unauthorized transfers. If unauthorized use occurs before you report it, your liability under federal law depends on how quickly you report the loss.

For example, if you report the loss within two business days after you realize your card is missing, you will not be responsible for more than $50 for unauthorized use. However, if you don't report the loss within two business days after you discover the loss, you could lose up to $500 because of an unauthorized transfer. You also risk unlimited loss if you fail to report an unauthorized transfer within 60 days after your bank statement containing unauthorized use is mailed to you. That means you could lose all the money in your bank account and the unused portion of your line of credit established for overdrafts. However, for unauthorized transfers involving only your debit card number (not the loss of the card), you are liable only for transfers that occur after 60 days following the mailing of your bank statement containing the unauthorized use and before you report the loss.

If unauthorized transfers show up on your bank statement, report them to the card issuer as quickly as possible. Once you've reported the loss of your ATM or debit card, you cannot be held liable for additional unauthorized transfers that occur after that time."

[Matt]

@kjaxx

Thanks for that. In both of my cases, it was reported to me by my bank before I noticed and I follow my accounts very closely which is to say that transactions were not yet posted when I was made aware of the activity. I didn't have the physical card stolen or lost, but rather the account number was used (Not sure if that was a skimming thing or a web purchase that was compromised). I do remember them saying that I had 60 days to sign and return the letter saying that I didn't authorize the transactions.

Seems like the key is that you have 2 days "after you realize your card is missing". Once I realize it, the bank is my first call.

Just spitballing here, but doesn't the visa logo generally protect you from any authorized credit/debit transactions provided you take the common sense steps above, whereas if your bank account number itself is compromized things get more iffy?

[Scott]

My wife and I have been heavy debit card users for the past 10+ years. We've never had any problem at all. Of course, something could happen at any time, I suppose, just like with any plastic. There are a few things we do. We try to never let our cards (debit or credit) out of our sight (like at restaurants, etc.) and when we he have to, we use credit cards instead of debit. We've never had a problem with a credit card either. Also, we typically use our credit card instead of our debit cards when shopping online. If the site is unknown to us, we'll often use PayPal, instead of any card.

[Mike]

We do something like this, but not for this reason.

We have our account at Wells Fargo because we want a bank which we can access almost anywhere, and because our mortgage is with WF.

We also have our ING account which we use to schedule our our bills and for our savings accounts.

Since most of the money in ING already has a specific purpose (bills or savings), we use the Wells Fargo checking account as kind of a staging ground for incoming checks on their way to ING, and for our debit card money (mainly for Sam's club and ATM usage).

[Cat]

I work in credit card fraud monitoring and I can share some tips for keeping your debit card safe. Fraud on a credit card is an inconvenience - we shut down the card and file on claim on the charges and you never have to pay on those charges at all. Fraud on a debit card can be devastating as the funds can take a while to get returned to your account and sometimes you have to go through more steps to prove that the charges aren't yours. Now that I know what I know about how card fraud can happen, I:

1. Never use my debit card at a gas pump. Setting aside the fact that some gas stations can put a hold of up to $100 or more on your account while the transaction is pending, gas pumps are one of the easiest and most popular places to place skimming devices that are used to read your card info and make a counterfeit card.

2. Never use the card in a transaction where the card leaves my hand/sight. If they have to run it in the back, they get my credit card not my debit card.

3. Never use the card to hold a tab open or as any sort of collateral (ie. they keep your card until you return the darts or pool cues at bar).

4. Never use my debit card at a stand alone ATM. If it looks like someone brought the machine in on a truck and dropped it off there, the risk is that they may have. If the ATM isn't built in and sponsored by my bank or another well known bank, I don't use it.

5. Don't use my card with small independent vendors. I am happy to shop at the local farmers market and support my community farmers but I won't use my debit card there. I don't think they are going to try and steal my money but they don't have the security resources that bigger merchants have and that puts my account at risk. Plus it saves them money if I just pay cash as they don't have to pay transaction fees.

6. Always pay attention to how the credit card machine looks. If it seems to be falling apart or held together with tape or looks tampered with or damaged in any way, I won't use my debit card there.

7. Always cover my hands when I enter the pin number. You know those pin head size cameras they always have on tv shows? They really exist. No one gets to see my pin number but me. It should also go without saying that putting your pin # on a piece of paper and taping it to your card is a really bad idea. If you absolutely have to write it down (not recommended), make sure it is locked up safe at home somewhere and not tucked in your wallet or purse. You would be shocked at how fast a thief can empty your bank account when they don't even have to bother guessing your pin number.

Merchants and banks take your security very importantly because it affects their bottom line as well. They want to keep your information safe and most do a great job. But it never hurts to help them on that front by using the card wisely and being vigilant about your own security.

[Luke G.]

I did this for a while. I only used the account for online purchases, and never kept more than $25 in it. If I was going to buy something more than that, I'd transfer ahead of time.

Royal pain. But, I did at least feel more secure in my transactions with online retailers with whom I had not established trust. Now I use my AMEX, with which I can cancel a transaction easily if the other party tries anything shifty.

[Tim]

Clark's solution is a good one and I recently set up my 2.6% interest up to $25k like this. Basically, I called the Credit Union and told them I was concerned about getting my $25k wiped out by fraud. The Credit Union told me my Visa debit card is still protected by Visa's fraud protection and guarantees. I still was concerned because this is MY money. So they offered to set up a new account where I could hold my $25k and collect 2.6% interest. They would then keep my existing account that is tied to my debit card and checks. This account would not give interest but it would link to the my $25k account so that my 10 debit card transactions qualified for the 2.6% interest. Also, be sure there is not an Over Draft protection that would tap the $25k account.

Easy solution. It took a 5 minute phone call. Working with my Credit Union is not like working with Bank of America or the like. They are actually nice to work with.

[jeffbone]

"To me, this plan...Seems like it would be a huge hassle to set up and manage."

That reason is the primary reason why I've not bothered with "rewards" checking accounts, even if they pay relatively high interest. It's too aggravating to remember that I have to make 10 (15, 5, whatever) debit transactions a month just to gain extra interest, when I can average about the same return just by using the bonus-paying credit cards already in my pocket. Add to that the extra fraud protection of the credit card (looking at Cat's list above, I'd be hard pressed to use a debit card anywhere) and that the banks will probably figure out a way to cut the "rewards" for debit card use soon, and it just becomes too painful to do.

As always, what's important to me might not be so to you and vice versa, YMMV, etc., etc....

[rdebit]

Protecting your debit card and any financial information requires an extreme amount of awareness. Never give out any financial information via email or to anyone and always validate a website before making any transactions online.

[Chris]

Are you allowed to charge yourself for the 10 transactions? Could be as simple as a recurring payment on Paypal or Square, which would be ~ $3 in transaction fees. If this is less than the monthly service change (and not cause for canceling you account), maybe this is a simple alternative that still allows you to use your credit card all purchases.

[Robin M]

I don't have time to read all the comments, but here is my debit card story.

A couple years ago, I got a call from my local credit union (who I had said debit card through) saying there was a possibility my debit card had been compromised, due to some major computer breach. At that point, there had been no doubtful activity, but they told me to keep an extra eye on the account.

A few days later, I noticed a charge for $300 and one for $400 at a Macy's in New York. We were in Texas. Both debit cards were in TX. I promptly freaked out, went to the credit union, filed a report, and was assured it would be taken care of in a couple days. Apparently it was a "counterfeit card."

Two weeks later, I still had not been reimbursed. I called the credit union and they apologized, and I got my money back the next day.

Some notes:
- Luckily, I could afford to not have $700 for a couple weeks. That is not the case for everyone.
- I am also lucky it was not MORE than $700.
- Also, I didn't have to deal with any bounced checks or fees as a result of this. That could be bad.
- Now, I prefer to use credit cards. If someone steals those, the money does not directly come out of my bank account.

[Bruce]

Um, your debit card with a Visa logo has the same exact protection as a credit card as long as it used as one, meaning no pin. It amazes me how many folks don't know this or don't believe it. Goto visa.com and read, read, and read some more.

[Cat]

@Bruce
You definitely have the exact same protection with your debit as with your credit card.

The difference is in the time it takes to resolve and the issue of having your own personal funds tied up versus just having some available credit on your credit card tied up.

[Lurker Carl]

I prefer risking the bank's money via a credit card. Their fraud department is bigger and better at tracking theft than mine.

[Russell Schwartz]

I heard about this new card product called a Secure Identity Prepaid Card. It has a security feature that lets you turn your card on and off using your cell phone. You send a text message to activate it before you make a purchase. If your card is ever lost or stolen, the card could not be used. If someone tried to use the card, you would get a text alert telling you the details of where it was used but the charge would not go through. If you wanted to have the purchase go through, you could activate your card and have the merchant swipe it again.

I just enrolled for one and I am waiting to get it in the mail. You fund the card with money from your bank account by a bank transfer. I can't wait to try it out.