With the recent uptick in credit and debit card fraud, lots of people are thinking about their card situation. A recent comment by an acquaintance made me think about the added danger of having your savings account act as a debit-card backup to your checking account.
Full disclosure: I'm not a huge fan of debit cards, and so I don't carry any true debit cards. I carry credit cards that can be used with the debit feature, if desired. I also carry an old-school Automated Teller Machine (ATM) card to withdraw cash when I'm not near my bank. I'm by no means a debit card expert!
My friend's debit card was compromised. She discovered when the USAA fraud department called to inquire about an unusual transaction that pretty much emptied her checking account. In addition to her kudos to USAA for noticing the issue, and quickly restoring her bank account balance, she also mentioned that she "was glad that she didn't have her savings account attached to that debit card, because the thieves could have cleaned that out, too."
And she's absolutely right.
Typically, debit cards are tied to checking accounts. However, some financial institutions allow you to then designate your savings account as a back-up to the checking account, rather than having your purchase declined. On one hand, that seems like a good idea. On the other hand, it opens you up to the exact situation my friend described. That is a really good reason to NOT have your debit card attached to more than one account. Yes, it may be inconvenient if you are making a purchase and your checking account doesn't have enough money, but that's a pretty small inconvenience (and also probably way better for your budget.)
While many banks and credit unions offer the same zero liability policies for their debit cards as their credit cards, not all do. Federal law limits customer liability to $50 if the customer reports the fraud within two business days, but even $50 is too much for me. In addition, not all companies refund stolen funds as quickly as our friends at USAA. It is not uncommon for it to take days or even weeks for the funds to be replaced, leaving the victims of debit card fraud in a bad financial situation.
If you're a debit card user, and that is the right educated choice for your situation, be sure to take a few minutes to familiarize yourself with your set-up, your bank or credit union's fraud liability policies, and how to set up alerts on your account. All these things can minimize the possible disruption to your life and your finances, plus help keep the bad guys from profiting quite so much.