Why You Should Never Use Your Debit Card

Target (NYSE: TGT  ) provided the latest update about the theft of its customers' information on Friday, and nearly doubled the amount of affected individuals hit by its data breech from 40 million to 70 million. Names, mailing addresses, phone numbers, and email addresses were all stolen. 

Source: MoneyBlogNewz on Flickr

While there is often a lot of guidance on why customers shouldn't use credit cards, this latest news from Target shows why using a debit card may in fact be a worse idea. And while in the example of Target both credit and debit cards were affected, and it has assured that its customers "will not be held financially responsible for any credit card or debit card fraud," it brings into question whether or not debit cards should be used at all.

The case against debit cards
While some say credit cards are dangerous because of the potential to rack up massive amounts of debt, it isn't as though debit cards should be used without caution or concern. With debit cards, consumers have fewer rights when it comes to unauthorized purchases, greater potential liabilities, longer potential resolution times, and even less protection on the purchases they do make.

The $500 potential
For both credit and debit cards, Federal law maximizes your potential losses to a maximum of $50 if your card is lost or stolen. Yet there is an important qualifier in the case of debit cards, and that is you must notify the bank within two days of the loss or theft. The Federal Deposit Insurance Corporation (FDIC) notes in the case of debit cards, "if you notify your bank after those first two days, under the law you could lose much more." 

Source: Flickr/ Images of Money

In the case of debit cards, if the problem isn't reported within those two days you could be liable for up to $500 in fraudulent charges. There is even the potential to be on the hook for more than $500 depending on the circumstances and the situation. 

In situations like the most recent Target example, an individual has 60 days to report an unauthorized transaction with a debit card if the number is stolen and the card is not. This is all contingent on carefully reviewing every transaction to ensure that all purchases were indeed made by the cardholder. In the case of a credit card, there is no 60 day limit to the error -- instead, you are simply "not liable for unauthorized use," according to the Federal Trade Commission. 

The waiting game
While the potential losses are greater in the event of a stolen or lost debit card when compared to those of a stolen credit card, another big problem is that even if you notice the unauthorized purchase within the time window, the banks still have weeks before their investigation of the improper charges have to be complete.

Source: Flickr/ Lending Memo

When transaction errors do occur, banks have up to 10 business days (and at times 20) to conduct their own investigation after they receive notice from the card holder that an error occurred. In the case of a debit card, this means that an individual might not be refunded, and the charges, withdrawn for weeks. At times banks will provide a credit to the account for the amount in question, known as "provisional credit" -- but that still takes time.

"Until the bank provides provisional credit, you could temporarily be out of pocket for the amount in dispute," said FDIC consumer issues attorney Richard Foley. "This would not typically happen with a credit card because consumers can withhold payment of the amount in dispute." 

Fewer rights
In addition to greater potential losses when a faulty transaction is made on a debit card, consumers also have fewer rights and less protection with debit cards when they receive damaged goods, faulty service, or defective merchandise when compared to the rights they have with credit cards.  

Since federal protections are greater with credit than debit cards, Heather St. Germain, an FDIC Consumer Affairs Specialist says, "you might consider using a credit card if you're concerned that your purchase might not go smoothly." 

While debit cards are helpful because they only allow individuals to pay for things which they actually have the money for, the reality is they also have their own fair share of risks too. If you pay the full amount owed each and every month, viewing a credit card as a safer way to make purchases is a great way to protect yourself and your money.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 14, 2014, at 10:14 AM, jdmeck wrote:

    Another question - Why is your address, telephone number and email on your credit or debit card?

  • Report this Comment On January 14, 2014, at 1:13 PM, Vitabrits wrote:

    It's why my debit card is locked for ATM usage only. I knew that debit cards are only covered up to a certain amount and after that you are SoL.

    What thieves love doing is taking someone's debit/credit card and then buying a bunch of those "debit gift cards". That way, the money is pretty much untraceable.

  • Report this Comment On January 14, 2014, at 1:27 PM, Loxly wrote:

    After having my info hi-jacked twice in 3 months I opted for a reloadable card. The just move funds to it whenever I'm going to buy via the web or other places. It's the only way for me to limit my liability.

  • Report this Comment On January 14, 2014, at 1:34 PM, jimmy5fingers wrote:

    The best reason is because it is stupid to use your cash immediately at the time of transaction with a debit card. Better to use a credit card and delay the outlay of cash for 30 days or more. Pay the bill on time at the next due date and you have used the credit card company's money in the interim, instead of your own. There is nothing more economical than using someone else's money, interest free. This is a basic rule of accounting. By extending payables, you create interest free cash in the interim. Duh... der!

  • Report this Comment On January 14, 2014, at 3:04 PM, Mori wrote:

    I finally gor a Debit card through my credit union. Use it for grocery shopping and atm withdrawals when I need to. Only used it at a store once, a Bed, Bath and Beyond. I needed to buy something and it was a little more than I thought it would be and didn't have enough cash on me. As for Credit cards I had one instance where I had a disputed purchase, the card company investigeted and the charge was removed from my account. ALWAYS check your monthy statements, you know what you buy, if something looks fishy, call the gredit card company, or the bank if it's a Debit card purchase. I paid off one credit card, I have a small balance on my other one, and use it primarily for any online purchases I make, and I make a note of what I buy and how much it is, and the date when I order anything. If there is a problem I'll see it right away. Just be smart, to be honest cash is still the safest way to go when possible,( I may be old fashioned but cash can't be "hacked into")

  • Report this Comment On January 14, 2014, at 5:48 PM, xetn wrote:

    The best option, by far, is to pay cash for all purchases. Cash purchases are not traceable and there are no counter-party risks (stolen account numbers, passwords, etc.).

  • Report this Comment On January 14, 2014, at 5:50 PM, jaimarai wrote:

    Why have a debit card if you are not going to use it for cash purchases? You might as well cancel it and get a regular ATM card.

  • Report this Comment On January 14, 2014, at 6:53 PM, maryjo wrote:

    I think that since the debt card is like a pre paid credit card it should be attachment to your credit score, this is no different when you go into the bank and ask for a prepaid credit card you only get the amount that you have paid for.

    Therefore it shows when a client has been bad to resume their standing because they have not received any negative marks on this debt card.

  • Report this Comment On January 14, 2014, at 6:54 PM, jssiegel wrote:

    Why would anyone even want to have a debit card, given the way the rules are stacked against them? If something goes wrong with a credit card, the bank has incentive to fix the problem because they don't have your money yet. I once had a bank that sent me a debit card when my ATM card expired. They are probably still wondering why they lost a customer.

  • Report this Comment On January 14, 2014, at 7:24 PM, mobadthangood wrote:


  • Report this Comment On January 14, 2014, at 7:27 PM, mobadthangood wrote:

    Anyone caught stealing debit or credit card information should be prosecuted to the fullest extent of the law.

    Jail time is NOT ENOUGH. They should be forced to work and pay back every single penny taken. Restitution to the MAX.

    I am sick of these criminals getting put in jail and then it costs the TAXPAYERS $40,000.00 a year and MORE to support them.

  • Report this Comment On January 14, 2014, at 7:38 PM, joybuysse wrote:

    I had my debit card information stolen and used in another country. Shazaam wouldn't count it as fraud because they knew my ssn and all my personal information. Luckily my bank took the fall and credited me back my $900, as I was obviously not in Europe at the time of the transactions. So even if you do try to report it, there's not much you can do.

  • Report this Comment On January 14, 2014, at 7:52 PM, cmalek wrote:

    When you pay cash, you don't have to provide ANY personal information.

  • Report this Comment On January 14, 2014, at 8:02 PM, gkirkmf wrote:

    My bank, Key Bank, actually charges me $1 a month to NOT have a debit card!!! Amazing huh.... the service folks have not explanation for this... I just noticed a $1 charge appearing on my statement!!! What a crock of #$#*. We are screwed by the banks, and now, it looks like the internet may be the next thing to go... I wonder how long it will take Verizon,ATT and Sprint to shake down the for the privilege of getting out timely emails to us? R.I.P Net Neutrality.

  • Report this Comment On January 14, 2014, at 8:24 PM, rac1ngspoons wrote:

    You also shouldn't carry cash (regardless of where your live and/or work but specifically where i live and work), checks (giving people your full name, address and signature if they get a hold of a signed one) or credit cards (after one bankruptcy most people don't want to put themselves through another). basically, don't carry any money or any charge card. in fact, never buy anything. and only leave the house to go to work or to get food. but don't pay for the food either. because it is too dangerous to have anything on you.

  • Report this Comment On January 14, 2014, at 9:33 PM, farmerart2014 wrote:

    Yours is the best comment. It should be moved to the front of the line. Everyone should read it first.

  • Report this Comment On January 14, 2014, at 11:13 PM, cobranut wrote:

    My bank sent me a debit card to replace my ATM card. I called and told them to send me an ATM card and to never do that again. The debit card went straight through the shredder.

    I use CREDIT cards for nearly everything. I'm using the banks money interest-free, MY MONEY is not at risk of fraudulent transactions, and all my cards offer cash-back. I average a couple grand a year in free money from these programs. :-)

  • Report this Comment On January 14, 2014, at 11:14 PM, Puahia wrote:

    Funny that it is never mentioned that the same credit card companies operate in Europe where they have used debit cards with chips for more than a decade. Second, most Europeans have the credit line with their bank instead of the credit card companies at half the interest rate.

  • Report this Comment On January 14, 2014, at 11:37 PM, jacktaylor wrote:

    Idiotic article - shill for credit card companies, per chance? Not just Europe but Canada as well use Debit cards for probably 90% of their transactions since, oh, about 1980. The only ones who lose are Visa and MC. Makes me wonder who was really behind the Target breach. USA needs to get with the times.

  • Report this Comment On January 15, 2014, at 9:23 AM, CrpoCircleArtist wrote:

    Consumption! It’s the new national pastime. To heck with baseball, it’s consumption. The only true lasting American value that’s left – buying things! People spending money they don’t have on things they don’t need – MONEY THEY DON’T HAVE ON THINGS THEY DON’T NEED – so they can max out their credit cards and spend the rest of their lives paying 18% interest on something that cost $12.50! And they didn’t like it when they got it home anyway!

  • Report this Comment On January 15, 2014, at 10:39 AM, RiReynolds wrote:

    Interesting, I've never used my debit card but, I wonder what will happen to discount grocer, ALDI,

    Their policy is cash or debit . Their pricing is attractive.

  • Report this Comment On January 15, 2014, at 10:58 AM, Pancakes22 wrote:

    Rule #1

    Never talk about fight club



  • Report this Comment On January 15, 2014, at 1:34 PM, blkyn123 wrote:

    It's nice to see so many people with the answer to ID and Credit/Debit card theft. The truth is, there is no way to prevent it from happening. It's the luck of the draw. The FTC says that it's the "#1 crime 5 years in a row. And these are just reported cases. The reality is, if you have a SSN and name you are vulnerable regardless of age and position in life. I think by the year 2034 if not sooner most of us will have some type of ID and credit monitoring service. My wife and I have had one since 2000. It gives us a peace of mind.

    Oh, and I find this article to be very informative.

  • Report this Comment On January 17, 2014, at 11:24 AM, TXObjectivist75 wrote:

    Don't own credit cards, and have used a debit card exclusively for 15 years. Never had a problem.

  • Report this Comment On January 17, 2014, at 11:37 AM, BobbieBunch wrote:

    Most banks debit cards can also be ran as credit. Where you sign but don't give a pin number. In at least VISAs case, and I suspect the other major CC companies as well, this offers the same protections as a VISA CC in terms of fraud protection and theft. Why? Because they want us using their network. Google "Visa Debit Card FAQ" and USA VISA's page will give you the following info.

    "Visa Debit card is a debit product, so why is there an option to press CREDIT at the terminal?

    When you press CREDIT and sign for a purchase, your transaction is routed through the Visa network. This gives you all the security protections of a Visa transaction. But your Visa Debit card still works like a debit card, not a credit card: The purchase amount is deducted from your checking account and you don't pay interest. See the complete list of security protections."

    "Does my Visa Debit card have security protections?

    Yes, when you sign for your purchases, Visa Debit card’s security protections help prevent, detect and resolve fraud in various ways:

    Visa's Zero Liability Policy*, which protects you from unauthorized charges. Any funds taken from your account due to fraudulent use will be returned to you.

    Continuous fraud monitoring to detect suspicious activity on your debit card

    Access to Identity Theft Assistance to help you recover your identity and prevent further problems

    A 3-digit security code to verify your identity for Internet and phone purchases"

    "What happens if someone steals my Visa Debit card and uses it fraudulently?

    If your Visa Debit card is lost or stolen and fraudulent activity occurs, you are protected by Visa's Zero Liability policy.* That means 100 percent protection for you. Whether purchases occur online or off, you pay nothing for fraudulent activity.

    If you notice fraudulent activity on your Visa Debit card, promptly contact your financial institution to report it. It is important to continually monitor your monthly statement to identify any unauthorized transactions."

    "Why do some merchants not require a signature or PIN for my Visa Debit card transactions?

    Many merchants do not require a PIN or signature for Visa Debit card transactions under $25. This helps speed up checkout. Similarly when you shop online or by phone and can’t sign for your purchase, you still receive all the benefits your Visa Debit card provides when you select Visa as your payment option."

  • Report this Comment On January 17, 2014, at 4:35 PM, VegasSmitty wrote:

    Been using the same debit account for over 20 years. Never had a problem.

  • Report this Comment On January 18, 2014, at 10:57 AM, Cashback1 wrote:

    My wife went through a drive thru fast food restaurant. She used her debit card for a $6 purchase. The girl at the window wrote down her information and the next day charged $50 to the card and put the cash in her pocket. I called the chain fast food and the manager looked it up and said sure enough, there was no food associated with the $50 transaction.. And low and behold the girl had done this before and they had not fired her and previous customer had forgiven her.. I did not, I prosecuted her and now she has a criminal record.

    I work for my money and if you steal it I take it personal.!

  • Report this Comment On January 18, 2014, at 3:04 PM, ffbj wrote:

    That is so sad. I bought a golf club and the guy was sort of rude. You know the type, angry about something. Anyway he asked me for my personal information. I balked and said I paid cash. I am not going to give you my information.

    Point being people can be rude, they want your information and some will steal from you.

    I have no credit cards nor debit cards.

  • Report this Comment On January 20, 2014, at 11:36 AM, Strider100 wrote:

    Hmm.. writing a check or using a debit card... that's what drove the growth of debit cards... No more check writing.

  • Report this Comment On January 20, 2014, at 7:12 PM, mamuang wrote:

    I have used a debit card for the last 8 years. Twice I had fraudulent transactions. My bank immediately credited my account for those transactions. I traveled overseas and used my debit card to withdraw money from an ATM. The money never came out of the machine but it came out of my account. I immediately called my bank collect and they credited my account.

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Patrick Morris

After a few stints in banking and corporate finance, Patrick joined the Motley Fool as a writer covering the financial sector. He's scaled back his everyday writing a bit, but he's always happy to opine on the latest headline news surrounding Berkshire Hathaway, Warren Buffett and all things personal finance.

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