In many ways, debit cards feel like a safer choice than credit cards. For example, you won’t rack up interest with a debit card, and the money comes out of your account right away. However, because they can directly access your funds, they actually do have some risk involved if you were to lose the card or its contents were compromised. Credit cards, on the other hand, offer more purchase protections, on top of the fact that you’re technically spending the bank’s money until you pay off purchases at some point later. So while debit cards are generally safe payment options, there are some risks with them.
Debit Card Hacking
Using debit cards when you make purchases online or at the store leaves your bank account vulnerable to hackers, thieves and fraudsters. Swipe that debit card at a big chain store and your data could fall prey to the kind of large-scale hacks that have made headlines in recent years. Credit cards, particularly ones with EMV chip technology, do a better job at keeping your information secure.
Overdraft fees on debit cards can be a killer. Now, not all banks allow customers to overdraw their accounts, and some banks let you opt out of overdraft services. But if you can overdraft and do, you’ll face fees that can quickly add up. Banks rake in billions every year from fees charged to customers who overdraw their accounts.
To avoid these fees, opt out of overdraft services or set up alerts so you’ll know when your balance is running low. Steer clear of accounts that charge you for overdraft insurance, though. You shouldn’t have to pay for insurance against fees. Look for free checking accounts instead.
As we mentioned, the fraud protection on debit cards isn’t as comprehensive as the protection you have on your credit card. Here’s another reason not to rely exclusively on debit cards: If you report fraudulent purchases made with your debit card information, you may not recoup the lost funds. Instead, you may have to prove that you took adequate steps to protect your card and pin. This can be hard to prove to the satisfaction of your card provider.
Plus, some card companies don’t return funds lost to fraudulent ATM transactions at all. Others won’t offer fraud protection to cardholders who are slow to report a problem. In most cases, customers have only two days to get in touch with the card company and report suspicious activity. So in cases of fraud, debit card users have more financial liability than credit card users.
Despite the general safety that debit cards offer, they do carry some inherent risks. Instead of using them for all purchases, try using your debit card to withdraw cash as needed. Then the rest of the time, use a credit card. This is particularly important for online transactions, where the risk of hacking is greater.
If you’re nervous about overspending, set up a budget. Then, go online and set up automatic credit card payments. As long as you pay your bills and generally keep your credit utilization to under 30% of your available credit, your credit score should be just fine. You might even get addicted to the credit card rewards.
Financial Planning Tips
- The management of your bank accounts and credits cards are part of any complete financial plan. A financial advisor can help you put together a financial plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Would you prefer to go the DIY route and create your own long-term financial plan? Check out SmartAsset’s guide to financial plans to learn more.
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