Many banks have added a feature to ATM cards that allows you to use the card for purchases instead of using cash or a check. The money is taken from your account electronically. These cards are called debit cards, or check cards. You can only take out as much as you have in the account, or in your overdraft protection account. Debit cards are for people who are disciplined enough to keep all of their receipts and diligently record every transaction in their checkbooks to avoid overdrafts.

Two Types of Debit Card

There are two types of debit cards. The first is referred to as an online debit card, which removes money immediately from your account when you use your PIN. The second type, called a deferred debit card, bears a MasterCard or Visa logo and can be used anywhere Visa and MasterCard are accepted. Deferred credit cards require you to sign a sales receipt and the amount is removed from your account a few days later.

Some banks combine both functions on one card, so when you're ready to pay using these cards, you have the option of hitting debit or credit on the keypad. Don't be confused by the Visa or MasterCard logo on these cards. They are NOT credit cards. Both types remove money directly from your checking account.

Debit Card Safety

Debit cards that require a PIN are safer than those that require only a signature. If your card is lost or stolen, anyone can sign your name, but a thief can't use your PIN-based debit card unless he has your PIN. If you have a card that allows both types of transactions, a thief could use your card even without your PIN.

Don't leave your receipts behind when you use your debit card or throw them away without shredding them. Thieves who “dumpster-dive” may find your receipt and use the personal information on it to rip you off. Never write your PIN on your debit card or share your PIN with somebody else. Don't use a PIN that is too obvious, such as your phone number or birth date.

If you notice a transaction on your statement that isn't legitimate, report it immediately. If you report it within sixty days, your liability is capped at $500, but if you wait more than sixty days, you're liable for everything the thief removes from your checking account and your overdraft account, if you have one. This is another reason to review your bank statement each month.

Visa and MasterCard have voluntarily extended the same protection to customers using deferred debit cards as they offer to credit card customers: Your liability is capped at $50 if you report the card missing within two days. However, this feature was instituted voluntarily by Visa/MasterCard and doesn't have the force of law, so it could change at any time.

Under the Fair Credit Billing Act, if you aren't happy with the quality of an item you purchased with a credit card, you can withhold payment for that item. This same protection is not true of a debit card. You'll have to try to work out an agreement with the merchant and may be stuck with a store credit instead of a refund, or you may not get satisfaction from the merchant at all. For this reason, it's a good idea not to use your debit card for big items or services, for online purchases, catalog purchases, or other purchases where you don't walk away immediately with the goods.

Finally, be aware that debit card purchases can lock up your checking account funds. You may end up bouncing checks even if you have sufficient funds in your account. When you choose “credit” and sign for a transaction, the vendor may authorize a sufficient amount for most purchases ($100, for example) and bill the actual amount later. For example, if you pay at the pump for gas, the gas station often “reserves” $100 of your account balance, so they know you can pay for the gas you're about to get. It may be a few days before they get around to releasing the unused funds.