Why Using Debit Cards Can Be Dangerous

Feb. 18 -- Americans pull out their debit cards for purchases almost as frequently as they take out cash, but hidden fees and security issues could outweigh the convenience.

In 1995, 60 percent of people used cash for purchases, while only 2 percent used debit cards (or check cards) and 8 percent used credit cards, according to a study on consumer preferences by Dove Consulting. By 2003, though, this balance changed significantly, Dove found, with 32 percent using cash, 31 percent using debit cards and 21 percent pulling out credit cards for purchases.

In fact, according to Cardweb.com, more than 52 million purchase transactions on credit and debit cards pass through the Visa and MasterCard networks every day in the United States.

As the use of debit card increases, it is essential for consumers to be on the lookout for their hidden fees and possible security pitfalls. Here are some common questions.

1. Are there different types of debit cards? Debit cards come in two different flavors, deferred and direct. A deferred — or signature-based — debit card is similar to a credit card without the credit. You sign for your purchases and the money is debited from your checking account within two to three days. A direct — or PIN-based — debit card requires you to provide a PIN, or personal identification number, to authorize your purchase and the money is withdrawn from your account immediately. According to Cardweb.com, in 2002, Americans made $180 billion in purchases on debit cards that required using a PIN and $318 billion on those that did not.

2. If given the choice, is it better to use a direct or deferred debit card?Similar to ATM surcharges, direct debit card purchases may come with charges that will show up on your bank statement. Hidden fees, the result of the battle between retailers on one side and banks and credit card issuers on the other, can add up significantly.