Money Talks, So Should You

Q&A: Is it safe to use a debit card online?

Mitch Marsden
by Mitch Marsden , NAPFA

While your bank’s debit card offers its own security features, there are some disadvantages to it when it comes to online purchases that may lead you to use a credit card instead. Both credit cards and debit cards have built-in protection against fraud that is required by law. 

However, your protection against unauthorized charges on your credit card is stronger. If your credit card is stolen, your maximum liability for unauthorized charges is $50. If you report losing the card before any unauthorized charges, the max liability is $0. Also, if only the card number is stolen (which would be more likely to occur as a result of online activity), you are also not liable for any unauthorized charges.

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When it comes to debit cards, the level of your liability depends on how quickly you report the unauthorized charges and your bank’s own policies. By law, if a your debit card is physically stolen and you report it before any fraudulent charges are made, you are not liable for anything. If you report unauthorized charges within two business days, your max liability is $50. If you report it sometime between two and 60 business days, your max increases to $500.

If you fail to report the fraudulent activity within 60 days after you have been sent the bank statement showing the unauthorized charges or withdrawals, you could be liable for all the charges and withdrawals. In other words, your account could be entirely depleted and you not have any recourse.

Banks and credit unions often have their own internal policies on fraud that may be stronger than the law, but don’t just assume; make sure to check with your own bank for how they deal with it.

Another major reason why debit cards may not be optimal for online purchases has to do with the fact that with a debit card, you pay now and get the goods later. If you have any issues with the product or service you buy on your debit card, you have to work uphill to get your money back. That may involve some haggling and frustration with the bank or e-retailer.

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With a credit card, you’ll often have time within your billing cycle to make purchases and actually receive, inspect/experience whatever you have purchased before actually putting forth your own cash. Credit card companies have guidelines and rules for dispute resolution which can make the process easier and more streamlined to get the charge removed.

If you decide to begin to use credit cards only for online purchases, be sure to continue good practices to protect your personal information and do make sure to completely pay off those credit card bills each month  don’t carry a balance!

For more great information on what the law requires for debit and credit card fraudulent activity, visit the Federal Trade Commission's website.

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Mitch Marsden is a member of the National Association of Personal Financial Advisors (NAPFA), a fee-only professional association and a Dimespring knowledge partner.