Knowing the Rules on Debit Cards can save you Money

September 22, 2009 12:00:00 AM PDT
More people are swapping their credit cards for debit as they watch what they spend. And while debit cards can be convenient they come with a whole new set of risks, you may not know about. Debit cards have fast become a favorite way for Americans to pay for purchases. In 2008, more than 28 billion purchases were made with debit cards, beating out credit cards by more than 7 billion.

But be careful: there are a whole different set of rules for debit.

Americans looking to save more and charge less, have given a big boost to debit cards; plastic linked to the cash you have, not a line of credit.

But it's important to be aware that credit and debit operate by different rules.

While credit card companies are likely to decline purchases that put you over your credit limit, some banks authorize debits that sink a balance below zero.

"Banks have instead given people the ability to have the charges go through whether or not the money is there," said Andrea Rock with Consumer Reports.

Bankers said it's mostly done as a convenience to the customer.

"If somebody's already eaten their meal or done their shopping, they want the transaction to go through," said Nessa Feddis with the American Banking Association.

But like bouncing a check, it can result in overdraft fees. Those charges come as a surprise to some, but there are simple ways to avoid them.

By keeping track of transactions and figuring out the balance, by linking the account to a line of credit or a savings account, so there's an automatic transfer.

Experts also recommend setting up account alerts to a cell phone or blackberry, so you can keep tabs on your balance at all times.

If you want to avoid the charges, find a bank whose debit card does not have overdraft protection, or tell the bank you don't want it when you open your account. This way, you can't purchase things when you don't have the money for them, and you won't be charged huge fees for doing so.

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