DEBIT CARDS
DIRECT PAYMENT
Virtually every bank or credit union offers debit cards with direct payment capability. The authorized transfer of funds with a debit card differs from a regular credit card:
- A debit card transaction automatically deducts the amount from your checking or savings account - your money.
- A credit card deducts the funds from a revolving credit amount - someone else's money.
The popularity of debit cards has skyrocketed recently, but the practice of deducting funds from existing accounts via card has been around for nearly 25 years. The debit system significantly reduces check and credit card use and the hassles associated with both.
The advantages are numerous:
- Worldwide acceptance: With the logo of one of the two major payment card companies on your card, you can make purchases anywhere those cards are accepted. When the logos are not present, acceptance is limited to merchants that will accept your specific card (look for compatible symbols on your card and the place of business).
- Convenience: Swiping a card is easier than filling out a check and many places offer the option of cash back over and above the purchase amount.
- Confidentiality: The transaction is verified by entering your PIN (Personal Identification Number) or signing the receipt. No other identifying information is released or printed on your receipt, with the exception of the last four digits of your account number.
- Money management: All debit card transactions are listed on your monthly statement, allowing you to compare receipts with your checkbook balance.
- No finance charge: Unless you activate an overdraft line of credit where card-issuer terms apply, there are not any finance or interest charges.
If you use your debit card like a credit card - to reserve a rental car or hotel room, for instance - some merchants may authorize a deposit amount by freezing the funds in your account, rendering them unavailable to you. This could put you in a financial bind, so ask the merchant about authorizations associated with deposits for reservations.
When using your debit card in lieu of a credit card, take precautions: if it is lost or stolen, contact your bank immediately and cancel the card. With some banks, there is no personal liability for fraud on your debit card. Your liability may be different on a regular credit card or one issued by your bank. Contact your bank to learn what liability or fees apply to your debit card account. 
If your bank or service provider offers the option, you can pay many of your bills through direct payment. Simply follow the steps to set up an automatic payment system. Then, on an agreed-upon date, the bill amount is deducted directly from your account and the transaction appears on your statement.
Direct bill paying usually involves Automated Clearing House (ACH), which acts as the middleman for paying your bills. For instance, when you authorize your cable company to automatically deduct the monthly charge from your checking account, the following things take place:
- The cable company submits your authorized form to ACH, which then prepares an ACH file in a pre-arranged format.
- The ACH file is delivered to your financial institution prior to an agreed-upon date.
- The financial institution processes the information, deducts the funds from your account, and sends the transaction back through ACH to your cable company.
- The amount and date of the transaction shows up on your next bank statement.
An estimated 43% of U.S. households have at least one bill paid by direct payment, with 32% of loan payments made in this way. Other kinds of bills that can be paid by direct payment are:
- Mortgage
- Insurance
- Investment and savings plans
- Car loans
- Newspaper/magazine subscriptions
- Utilities
- Cable TV
- Health club
- Credit cards
- Donations and contributions to non-profits
Advantages of direct bill payment:
- Timely Payment: No more worries about forgetting or being late with a payment. This is especially advantageous, as much of your credit rating is based on timely bill payment.
- Cost-Effective: An average household can save $45 to $65 a year on postage alone. Certain service providers offer incentives such as lowered interest rates or payments if you use their direct payment system.
- Money Management: Your statement reflects every amount deducted from your account, allowing you to track your money and update your register.
Housekeeping Tips
Take a few steps to ensure the safety of your account.
- Keep a list of your wallet contents - including account numbers and any contact information - in a safe place other than your wallet. Do not include PINs or expiration dates on this list. This is a smart practice in the event of card loss or the loss of your entire wallet.
- Learn about all the card options, along with limitations, liabilities and any charges that may apply. Knowing what your card can and cannot do may save you hassles when dealing with merchants or the card-issuer.
- Put in writing and sign all authorizations for direct payment.
- Verify a company’s reputation before you sign an authorization for direct payment.
- Check your statements, verify all amounts against your receipts; update your checkbook register, and dispute any errors immediately.
- Sign your card as soon as you receive it and be aware of all security precautions.
- Do not share your PIN with anyone and don't write it down anywhere.
- Keep your card away from excessive heat or magnetic objects, which can deactivate it.
- Be aware of any daily purchase or withdrawal limits set by the card-issuer.
Common sense and responsible behavior will allow you to take full advantage of the services your debit card provides.
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