NEW YORK -- Last Christmas, Marcie Knapik Sanders of Charlton, Mass., got a plastic card in the mail that she thought was a MasterCard. It came unsolicited from her new bank, the Shawmut. If she spent enough money with it, she could win a Jeep Cherokee. So she put her other card away and bought Christmas presents with the new one.
Big mistake. Although it looked like a credit card, felt like a credit card and acted like a credit card in the stores, it wasn't one. It was a debit card and there's a world of difference. Debit cards are valuable financial tools but you have to know how to use them. Because she didn't, Marcie Sanders unintentionally bounced five small checks. Her bank covered them but charged her $110 in overdraft fees.
The card you know best is the credit card. With it, purchases are charged. You pay the bill at the end of the month or in installments over time.
With a debit card, by contrast, you pay for your purchases right away. It's like writing a check or paying cash. When you use the card, money is drawn directly out of your bank account.
The debit card you know best is the classic ATM card. You use it for deposits and withdrawals at an automated teller machine. In many gas stations, convenience stores and supermarkets, you can use your ATM card in lieu of cash. You put the card in a terminal and enter your PIN number; money to cover the purchase is instantly paid to the merchant from your account. If not enough cash is available, that purchase is turned down on the spot.
Marcie Sanders, however, was using a newer type of debit card: an ATM card with a MasterCard or Visa logo on the front. Banks are adding the logos to the cards of most of their creditworthy customers. Around 25.5 million of these ATM cards were circulating last year, up 40 percent from 1993, according to Credit Card News in Chicago.
MasterCard and Visa ATM cards are accepted by every merchant that also takes the credit card. They're processed the same way in the stores. But they're handled like a check. In two or three days, the debit will arrive at your bank for payment and the full amount will be deducted from your checking account. If you don't have the money, the debit will bounce.
Consumers like Marcie Sanders, who are unfamiliar with debit cards, may not even realize that they have one. Banks usually don't call it a debit card: it's an ATM Card, Cash Card, Check Card, Convenience Card, or something similar. When Sanders used it to buy Christmas presents, she was draining cash from her account. But she didn't know it, so she continued to write checks. The first four checks that bounced amounted to $52.43 -- for which she paid $88 in overdraft charges.
