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Debit cards: Everything you need to know

The appeal of debit cards is convenience, but they are not always free to use. Here are the key concepts you need to know.

Video Transcript

- The appeal of debit cards is convenience. It's easier and faster for most people to carry a small plastic card than a checkbook or a wad of cash. The purpose of a debit card is to pay for goods and services with funds taken from that account. The funds are transferred immediately from the account to the vendor.

Debit cards aren't always free. There are overdraft fees if you withdraw more money than you have in your account. If you use your card at an ATM not run by your financial institution, you may be charged a fee. There may be fees for simply having the card or for not using the card, activation, and contacting customer service. Your financial institution must, by law, disclose all fees and charges on debit cards.

You might receive a debit card with your health savings account and flexible spending account money, to pay for products and services that are covered, like medications. Debit cards now exist for 401(k) plans, allowing you easy access to your funds. However, these funds must be paid back, as they're actually loans.

Prepaid debit cards, or gift cards and loadable cards, allow you to add money to the balance. Payroll cards are a type of prepaid debit card offered as an alternative to a paycheck or direct deposit. Your wages get loaded onto the card.

Rewards cards are incentive programs offered by financial institutions and businesses to persuade you to spend money with them. With some, you amass points or airline miles. Others deposit cash into a bank account that they're tied to.

Fraud can be a time consuming, emotionally exhausting mess. Here are some tips for keeping your cards safe. Don't share your pen with anyone unless they're a co-owner of your account. Review your bank statements as soon as they arrive. Time will be of the essence when discovering and reporting any discrepancies or unauthorized charges.

Don't give out your bank information over the phone or online. Consider not giving your card to clerks at retail spots. But instead, use it at a do it yourself scanner at the counter. At restaurants, if you see a blank line on a receipt and don't intend to fill it in with numbers, draw a line through it. This will prevent unauthorized charges from being written there. When shopping online, use a firewall and spyware protection. Stay financially fit, friends.