Debit cards have become a way of life for many consumers. When you use a debit card, the purchase is deducted directly from your checking account. There are two ways to use a debit card; through an Automated Teller Machine (ATM) where you can withdraw cash or through a Point of Sale (POS) that accepts your type of debit card.

The majority of the banks offer MasterCard or Visa debit cards which offer convenience and versatility. Also, debit cards are great because there is no chance of spending more than you have hence no overdraft fees charges for you if you “Opt-Out” of overdraft protection. 

However, this convenience and savings of overdraft fees come with certain risks and dangers that you need to understand before using your debit card freely. 

The other type of bank card is a Credit card; the main difference between credit cards and debit cards is that, whatever you spend on the credit card, you will have to pay back, while with debit cards you are spending your own money. 

Hence credit cards are potentially dangerous, especially for new credit card users who may be fascinated by the allure of what seems like “free” money. So, if you are thinking about getting a credit card, it is important to understand the dangers that come along with credit cards to help you cultivate better usage. 

Hence the next two weeks, I will share a few risks and dangers associated with using your bank's cards. This week, I will talk about the risks and dangers of debit cards;

 Reimburse of Fraudulent Charges on Debit Cards – When someone has fraudulently used your debit card, the money comes directly out of your account immediately. That means you do not have that money while the bank does its due diligence to confirm your fraud claim and this process may take up to 30-45 days or longer depending on the bank. Many customers complain of the waiting time while unable to access the funds that were stolen by the fraudsters. 

This may lead some of them to be short of funds to pay their necessities such as food and utility bills. With that being said when shopping for your next current/saving account, don’t forget to ask the bank for their Turn Around Time (TAT) of investigating and refunding the fraud charges on your account so you will know if that will work out for you in case a fraud occurs.

 Overdrafts Charges – Many consumers naively assume that if they don’t have sufficient funds in their current accounts, their bank won’t approve a debit card transaction. But they are wrong. The majority of international banks do charge you a fee called an overdraft fee if you use your debit card when you don’t have sufficient funds in your account. Overdraft charges have been soaring in recent years and the major causes of that are the lack of awareness of the charge to the consumers. One way banks can help consumers is to give them the option to “Opt-In” or “Opt-out” of automatic overdraft protection at the time of opening the account. If a customer chooses to ‘Opt-In”, the bank will allow debit and ATM transactions to go through even if the customer doesn’t have enough funds in the account while if the customer chooses to “Opt-Out”, the bank will not allow any transactions to go through when the account doesn’t have sufficient funds.

 Withhold Charges – When you use your debit card to book a hotel or rent a car, generally the merchant will put a “hold” on more funds in your account than what you are actually spending. Yes, you have read it right. The merchant puts a hold on funds for the full amount of your spending plus an estimated amount for “accidents” in case of any activities that might run your bill more. 

The extra estimated amount is not an actual bill but it does not come off your account until the final bill from the merchant is presented to your bank. This does affect your available balance in your current account and might lead you to overdraw your account.

Next week, I will share the risks associated with Credit cards.

Kelvin Mkwawa, MBA, is the Seasoned Banker. He can be reached through Email address: [email protected]