A couple days ago I wrote that you can stop worrying about credit card fraud; if your credit card number is compromised, you aren’t liable for any charges. But there’s a caveat: this does not apply to debit cards.
Debit cards are the worst financial device in the market today. Debit cards can be used without a pin number, and pull money directly and instantly out of your checking account. If your card number is lost or stolen, actual dollars will drain from your account.
This FTC website clearly shows your maximum liability in case of theft or fraud. For a credit card, it’s $50 (though most good banks will cover that as well). For debit cards, it’s potentially a lot more. The liability depends on when you determine that there is fraud and report it to your bank. In the extreme case, debit card fraud could drain your entire account! To be totally protected, you have to check your statement every 2 days. That’s totally unreasonable.
The scariest thing about debit cards isn’t the amount of money you will lose, but the disruption it might have on your life.
If your credit card is used fraudulently, you will see this on your statement before you pay, and the charge will be removed while it’s being investigated. With a debit card, the money will have already been taken out of your checking account. You must prove your innocence to get your money back. This could take weeks, and in the meantime your rent check could bounce, your utility payments that debit from your checking account might fail, your credit might be affected.
Why would you put yourself through that? The fraudulent charge might be small, but the pain and suffering cost you much more.
Credit cards are a safer option. This is all without mentioning the other benefits of credit cards: they are free, help you build credit, give you rewards points, and offer benefits like extra warranties, travel perks, and more.
Here’s my recommendation:
1. Get an ATM card that isn’t a debit card
You can still get an ATM card that isn’t a debit card. It won’t have a Visa logo on it, and you can’t use it without a pin number. This lets you get cash from a machine, without putting your money at risk.
2. Get a credit card from a good bank that has customer service in the United States
I recommend American Express, Capital One, and Chase, but there are plenty of others.
Your bank will tell you that you’re protected if you use their debit card, but they want your business. The details matter. Search on Google and you’ll find plenty of debit card horror stories. Here’s a good article summarizing the risks.