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I have a checking account that I keep very little money in. I use a debit card as a credit card at shops, and at the ATM. I have turned off overdraft protection on the checking account.

I've heard that using a debit card is dangerous. Given my situation, is it still dangerous? No overdraft and a low balance? I've also talked to my bank (USAA) and they've indicated there is fraud protection on my card, if it should be stolen and used to make purchases.

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    "I use a debit card as a credit card..." - huh? I think you're missing the term "credit card", as by definition a credit card extends a line of credit to you so you can spend more than you (may) have. Can you clarify what you mean? Where did you hear a debit card may be dangerous? An account with a debit card that has $10 in it can, generally, not be used to debit $1000 from it (you likely get declined). Whereas a credit card can have up to the credit limit spent, regardless of how much you actually have in any account, which is arguably more "dangerous" – BruceWayne Mar 1 at 4:53
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    Do you mean the type of debit card that looks like a credit card (Visa/Mastercard, 16 digits, CVV code), or a Maestro/Cirrus "ATM card" that cannot be used for card-not-present payments? Both may be called debit cards but they're very different products. – gerrit Mar 1 at 8:50
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    @BruceWayne A debit card is used to pay directly from your account while a credit card is a loan you pay off later. Yes, a credit card extends your spending limits, but a debit card can do that as well if the account can go in the red (e.g. no "overdraft protection"). The only real difference is when the money leaves your account, not wether it extends your spending limit. I assume what OP means by "use a debit card as a credit card" is that they simply pay with the card like you would with a credit card, which is common in my country but I guess is not common everywhere. – Kevin Mar 1 at 13:58
  • @BruceWayne in the Untied States, if a card user reports a fraudulent transaction, most credit card and debit card processors will hold the card user to $0 liability out of good business practice. But if it becomes contentious, the law is written to limit liability to the card user to $50 for credit card fraud and $500 for debit card fraud. That is $450 more danger, to me. – user662852 Mar 1 at 16:30
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    @BruceWayne OP probably means running the charge as "credit" (i.e. don't enter PIN) instead of debit. – Kenneth K. Mar 1 at 17:49
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The "danger" of using a debit card is that what backs it is your real money. If there is a fraudulent transaction, the money that is used to settle the transaction is yours. Yes there is a dispute and fraud protection policy offered by your bank, and should you qualify for it you'll get your money back.

If you use a credit card and there's a fraudulent transaction, the money that settles that transaction belongs to the credit card issuer. Yes you're obligated to pay it (or dispute it as fraud,) but it's a debt you owe, not your money that's been used.

So is it dangerous to use the debit card in the situation you've outlined? You've mitigated the risk by keeping your exposure low, but it would still be lower by not using the debit card in the first place.

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    It'd be nice if you could elaborate on the difference between "your" money vs. money that's lent to you and that you have to pay back because I don't think it's obvious. – Mehrdad Mar 1 at 7:20
  • Debit cards in the U.S. still often can be used by their magnetic stripes and without a PIN. The information on the card can be used for online transactions. – Todd Mar 1 at 8:43
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    @Jungkook In UK, USA and elsewhere, debit cards are Visa/MasterCard, look like credit cards, can be used for card-not-present payments and with swipe&sign. In Netherlands, Germany, and elsewhere, debit cards are through Maestro and cannot be used for card-not-present payments. The N-American equivalent would be ATM Card (which can also be used at POS). – gerrit Mar 1 at 8:49
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    @mehrdad you have the choice whether to pay back a credit card in full or spread it out per the interest terms. If it comes to it, you can declare bankruptcy and be released from credit debt. These are features not available to debit card use. As I noted in another comment, the laws in at least the United States limit card user liability to $50 for credit card fraud and $500 for debit card fraud. consumer.ftc.gov/articles/… – user662852 Mar 1 at 16:36
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    Key clarification: If there's a fraudulent transaction, who's out the money during the course of an investigation? With a debit card, it's you; with a credit card, it's not. If the sudden unavailability of all the funds in the account tied to the card would cause other consequences, those other consequences are what you risk by using a debit card instead of the credit card. – WBT Mar 1 at 21:02
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Todd has a great answer. Just building on that there is also the danger when you want to hire a car, stay in hotel etc. that you need to put down your real money. Instead what typically happens is the hire company does a transaction whereby it ensures you will have the funds to pay the damages if anything goes wrong, without you necessarily having enough cash to do so. This happened to me when I was travelling as I also don't have a credit card. Some hire car companies are very reluctant to lend you a car if you do not have a credit card.

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    Is that really "danger" or just an inconvenience? – mastov Mar 1 at 10:12
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    @mastov It can be a lot more than just an inconvenience. On a debit card, a "credit hold" reserves a (potentially-large) chunk of your funds such that you cannot access them. After the merchant releases the hold, it can take up to a week before you can access those funds again. This can easily leave you vulnerable to overdrafts, bounced checks, late bills, etc. – bta Mar 1 at 21:46
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The dangers are:

  • When (not if) your card gets used for fraudulent transactions, those funds will be gone from your account until you get it resolved, which might take awhile.
  • When that happens, you'll want them to cancel that card and issue a new one. You'll be without access to any remaining funds in your account until that is resolved, which might take awhile. (Excepting in-person cash withdrawals or writing checks of course.)

Credit card people have it a bit easier. Funds don't disappear from their account, their amount of available credit just goes down. They still have access to funds in their account via a debit card, they just might not be able to use their credit card for additional funds beyond that. So it's likely to be resolved before it affects them, as long as they have funds in their account. That mitigates the danger for them.

I don't have a credit card. My solution is to carry a separate debit card for another account. If my primary gets compromised, I have my backup to last until it's resolved and vice-versa.

My credit union is actually very good about proactively detecting and blocking fraud, though it's gotten past them a couple times. In those cases it only took a few days to get my money back, but it could take much longer - would you be ok if your account was empty for a month while you waited? I can also get a new card on the first business day that I can get into a branch - can you get yours that quickly or do you have to wait a couple weeks for them to mail you one? Even if you can, if weekends and holidays and travel and weather intervene and make it take awhile before you can get in, would you be ok without your card?

Using a debit card isn't dangerous in itself, but you'll be in for a tough time if you're not prepared to deal without it for a bit. I recommend keeping a backup from a second account. That mitigates the danger.

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Many years ago, I used a Visa debit card for all purchases. Then there was a fraudulent charge on the card; luckily, my bank spotted it and refunded it immediately.

I asked them what I could do to protect myself in future: the bank said I should use a credit card instead, as that had much greater protection. (As other answers have pointed out, you have an opportunity to contest a charge on a credit card before you've paid it.  Credit card companies have a greater incentive to resolve any problems, as it's their own money at stake!  I believe there are other advantages, too.)

One other advantage to using a credit card is that you build up a credit score — especially if you pay it off in full every month (as I do). Had I not started using a credit card back then, I might have had much more trouble getting a mortgage.

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Federal law in the United States (as the OP mentions USAA) sets different requirements and limits on a user for reporting fraudulent use of a credit card versus a debit card. While as a matter of good customer service, a bank or card may hold you to $0 for the report of a fraudulent charge for either type of account, what they are required to do by federal law is different for each. In general the maximum liability a credit user has is $50. The maximum liability a debit card user can be unlimited.

From the Federal Trade Commission

Under the FCBA, your liability for unauthorized use of your credit card tops out at $50.

...

If someone uses your ATM or debit card before you report it lost or stolen, your liability depends on how quickly you report it:

...

More than 2 business days after you learn about the loss or theft, but less than 60 calendar days after your statement is sent to you, $500

More than 60 calendar days after your statement is sent to you. All the money taken from your ATM/debit card acount, and possibly more; for example, money in accounts linked to your debit account.

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No overdraft and a low balance?

You have to be very careful to make sure that you don't hit zero with this account.

In theory if you do hit zero, they shouldn't allow the transaction to go through. But it still might.

Also remember that the holds put on your card if you use it to buy gas, or buy a plane ticket can cause the balance to appear to be much lower. If you then try to use the money in the account, such as when you write a check, or when a charge actually hits the account, then a transaction can be denied, even though you know you have plenty of money.

The issue is timing. The money should be deducted immediately, but I have seen it take days for the debit to actually occur. Recently I used an ATM card at a machine to get cash on a Saturday, but it didn't show up as a withdrawal until Tuesday.

  • All transactions using a credit card processing network (e.g. Visa, Mastercard, Discover, AmEx) have significant interval between authorization and posting. The transaction doesn't magically clear more quickly just because a debit card is used rather than a credit card. Debit card transactions only clear faster if they are run through an ATM network instead (e.g. Cirrus, STAR, Plus) – Ben Voigt Mar 2 at 22:13

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