NEW YORK (MainStreet) — Loud advice from financial security experts: amid the hubbub of holiday shopping, restaurant splurging, maybe holiday traveling - keep your debit card firmly in your wallet. Do not use it. By all means, use credit cards. Cash is great. It’s debit cards that raise unique security problems, and criminals know - and exploit - our lack of attention to card activity over the hectic holidays.
Debit cards “are definitely not as safe to use as credit cards during the busy holiday season,” said Kimberly R. Goodwin, an associate professor of finance at the University of Southern Mississippi.
Nobody is saying criminals don’t steal credit card data. They certainly do. But your protections as a consumer are vastly richer and deeper with a credit card. Add in many perks that come with credit cards, and it’s a no brainer. Leave the debit card in the wallet.
It starts with protection against losses due to fraudulent use. Your liability with a credit card - as specified in federal law - maxes out at $50. Both MasterCard and Visa sweeten the deal, essentially making the maximum loss zero on those cards. With a debit card, your maximum loss is $50 - if you notify the issuer within two days of learning about the loss or theft of the card. If you report after two days but before 60 days, your liability is capped at $500. If longer than 60 days, your loss is unlimited. Do the math. Credit cards win out.
But the debit card story gets worse. Sean Graw, outreach coordinator at the Brad’s Deals website, tells his sad story: “My card information was compromised, and whoever stole it racked up nearly $1,900 in charges within a few hours. I went to my bank to report the fraudulent activity and discovered something unfortunate. Because of the way debit cards pull money from a bank account, I would need to wait for the charges to process (they were still pending at that point) and then wait another five to ten business days to be credited for the stolen money.”
With a credit card, when fraudulent activity is reported, poof, it goes away, typically instantly in most cases. Life is not that simple with a debit card. Massachusetts based identity theft expert Robert Siciliano agreed that “when a debit card is compromised, the stolen money can be hard to get back.” And you may be the loser.
You need still more reasons to boycott debit cards this holiday season? There are many.
You will get richer rewards with credit cards, said Jonathan Roisman, with research company NextAdvisor. That is fact. Discover, for instance, offers cash back on most purchases. Other cards do likewise. American Express offers rewards points that can be used in lieu of cash. Some debit cards now offer similar rewards, but most programs are anemic and many debit cards offer nothing at all.
Debit cards also may involve nasty holds on your cash, said Roisman. Check into a hotel, and it will pre-authorize spending well above the room rate (allowing for minibar purchases, maybe a meal in a restaurant). Go to a gas station and - in activating the pump - usually there’s a pre-authorization in the range of $100. Yes, likewise happens with credit cards but they typically have generous limits. On a debit card if you have $250 in that account and the hotel puts a hold on all of it, that’s that.
Better warranties often come with credit card purchases, said Matthew Coan, who blogs about finance at Casavvy.com. American Express, for instance, on many purchases on some cards extends the warranty by a year, at no cost (which means there’s no need for an extended warranty purchase).
A last, compelling reason to ditch debit cards: there are no overdraft charges on a credit card. But there may be on a debit card. Attempt to make a purchase that exceeds your credit limit and, in many cases, it will simply be denied. No harm to you, no cost. It’s not that simple with a debit card. The financial institution may authorize the overdraft - but it will pile on fees that start around $30 and quickly climb much higher. This can be so even when the overdraft is $1, and it all happens silently. You may not know until you look at your statement and see that, suddenly, you have been slammed with an avalanche of fees.
Add up the negatives and the best place for a debit card is safely in your wallet -- or maybe home in a drawer.
—Written by Robert McGarvey for MainStreet