Careful With That PIN: Five Ways Debit Cards can Deflate Your Bank Account

By Mike Peterson
In December 4, 2009

It’s happened to most debit card users at least once:  You use your card for something little and stupid, like coffee – something that, if you’d really felt like it, you could have paid for with the quarters you scrounged from your car’s ashtray.

But you don’t have time to go digging for cash.  You swipe your card, enter your PIN, and you’re done.

Simple, right?  And convenient.

And then, the next day, you log on to your bank account and realize that you didn’t actually have the money for that coffee.  But, your bank was considerate enough to float you the cash, for a fee.  A $35 fee, to be exact.  You’re overdrawn.

That’s one expensive double mocha latte.

In many ways, debit cards are ideal:  They’re easy to use, and, because they are linked directly to your checking account, debit cards don’t help you rack up mountains of debt.  But, what many consumers forget is that debit cards come with a few drawbacks – usually in the form of penalties or hidden fees.

But that doesn’t mean you should cut up your debit cards.  It’s easy to avoid most of these fees – if you know what to watch out for.  Here’s what you need to know to keep your debit transactions hassle-free:

  1. Your bank will probably authorize your debit transactions – even if you don’t have money in your account. And then, they’ll charge you an overdraft fee.  Those fees can add up – a few transactions can lead to a domino effect of hundreds of dollars in fees.  The best way to avoid a negative balance is to keep track of your money:  Use a ledger or check your available balance before you go out.
  2. Debit cards give you less protection from identity theft. This is probably the only case where a credit card is superior.  Think about it:  If somebody steals your credit card and buys, say, a $5,000 flat-screen TV, your credit card provider will intervene.  After all, they’re the ones out the cash.  But if somebody steals your debit card, anything they buy comes out of your checking account.  It’s your money, and your bank will be significantly less interested in helping you recoup your cash.
  3. Your debit card is real money. There’s something about a card that makes it easier to spend money on things you don’t really need – and would never pay cash for.  Treat your debit card exactly like cash, or a check.  Think about it this way:  If you had a $20 bill (and no debit card), would you really want to shell out $18.50 for that DVD?
  4. Some banks charge you a fee just for the privilege of having a debit card. Debit card fees vary from bank to bank, but they’re usually a few dollars a month.  Some only charge you a fee if you’ve actually used your debit card; others charge debit card customers a fee whether they use their cards or not.  Check out what your bank charges you, and do a little comparison shopping.  You might want to switch to a bank with lower debit card fees – or no fees at all.
  5. Merchants treat debit card transactions like cash. Which is no big deal . . . until you need to return something.  Chances are, that purchase won’t go back on your card – and at some stores, this may mean you’ll get a store credit instead of actually getting your money back.  If you’re paying by debit, make sure you know the merchant’s return policy before you enter your PIN

Debit cards are convenient, and some even give you some great benefits, like reward points or airline miles.  And, as long as you use your debit card responsibly, you can avoid the drawbacks of debit card use.  Be on the lookout for hidden fees, and always, always know what’s in your checking account.

After all, $35 should buy more than a cup of coffee.

Mike is the author of “Reality Millionaire: Proven Tips to Retire Rich” and he has been published in a variety of local and national publications including Entrepreneur Magazine, Deseret Morning News, LDS Living Magazine, and Physicians Money Digest. He holds a B.S. in business administration from the University of Phoenix.