If you’ve ever used your debit card to make a purchase (and with a growing number of consumers choosing debit over credit, there’s a good chance that you have), you may have noticed that a hold placed on your account by certain retailers is higher than the actual cost of the purchase.
“After a debit card is swiped for payment, certain retailers sometimes place a hold or a block on money from the account in order to secure the payment, protecting the money from any other use,” Bill Hardekopf of LowCards.com and current contributor to TheStreet.com explains. “This reduces the risk that the customer will be overdrawn and leave the merchant unpaid.”
Many restaurants, for example, will authorize a debit card for $2 to $3 more than the bill’s total to make sure consumers have enough money in their account to leave a tip on the debit card. Hotels, additionally, have been known to put a hold on 120% of the cost of your room in an attempt to cover any unexpected incidentals that occur during your trip.
“A big surprise can also happen at gas stations,” Hardkopf adds. “If you use your debit card at a pump that does not require a PIN, your bank may block out as much as $50 to $75.”
Merchants are essentially making sure that you have enough cash to cover everything you end up owing them. While the actual charge is not put through until the merchant submits their batch of transactions and the banking system transfers the funds, you will still see a discrepancy on your checking account. You also won’t have access to the difference, which could lead to a card being declined unexpectedly, or for those who have overdraft protection, finding their accounts overdrawn and subjected to fees.
“The problem comes if your balance is low or if multiple payments hit at the same time,” Hardkopf explains. “The hold can lead to costly charges for insufficient funds if you still have overdraft protection on your checking account.”
Hardkopf offers the following suggestions to avoid running into problems with your debit card:
Find out what the hold is going in. Merchants should be able to tell the amount of money that will be held from your account and how long the hold is likely to stay there. Knowing this information in advance will prevent you from overdrawing funds that you may have previously expected to be there.
Stick with the same card during the entire transaction. Consumers who use a debit card to reserve a hotel room or a car rental shouldn’t switch payment methods when it comes time to pay their bill. If you pay with a different card, or use cash or a check instead, Hardkopf explains, your card issuer may not remove the initial hold for up to 15 days after you’re gone because it wasn’t notified of the final payment and may not know that you paid another way.
Use a credit card for large purchases. If you know a purchase is going to result in a high hold, you’re better off putting it on a credit card because chances are, any erroneous charge will have been adjusted by the time you receive your monthly statement. If you do use your debit card, stick to pin-based payments, which are processed and registered immediately.
What else do you need to know about your debit card? Check out this MainStreet article to find out!
—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.