Use your credit card, not your debit card, online
If you typically use a debit card for online purchases, you may want to reconsider. If your card information is hacked and purchases are聽made without your permission, you鈥檒l quickly find out that debit and credit cards are treated quite differently.
The key difference:聽With a credit card, the card issuer must fight to get聽its聽money back.聽With a debit card, you must fight to get聽your聽money back.
How fraud is handled
If card information has been stolen and potentially fraudulent transactions have been made,聽聽protect聽your rights. For credit cards, the primary law is the Fair Credit Billing Act, or FCBA. For debit card transactions,聽the聽Electronic Funds Transfer Act (EFTA) applies. While these laws offer some similar protections, knowing the differences聽is key to understanding why it鈥檚 safer to use one type聽of plastic than the other.
Debit card fraud
According to the EFTA, your potential liability for fraudulent debit card transactions is virtually unlimited. You have up to 60 days to report a lost or stolen card under the EFTA. After that, you simply lose whatever money was taken, even funds siphoned from linked accounts. The exact liability limits under the EFTA are:
- Lost or stolen card reported before unauthorized transactions: zero liability.
- Lost or stolen card reported within two days: $50 liability limit.
- Lost or stolen card reported within 60 days: $500 liability limit.
- After 60 days: no protection.
It鈥檚 important to note that if your card is not physically lost or stolen, you have 60 days to report fraudulent transactions with zero liability. If only your card聽number聽is stolen, the聽60 days start from the date of the statement on which a聽fraudulent transaction appears.
Credit card fraud
Under the FCBA, your maximum liability for fraudulent credit card transactions is $50. If you report your card lost or stolen before any fraudulent聽transactions occur, your liability is zero. Many聽credit cards promise聽zero liability for all fraudulent transactions.
鈥淚鈥檝e had my credit card information stolen and used fraudulently a number of times,鈥� says Tucker Spillane, a 24-year-old credit analyst from New York. 鈥淔ortunately, my issuer almost always picks up on it right away 鈥� usually because the activity is considered abnormal from my typical聽spending habits. And they provide their own fraud coverage anyway. I鈥檝e never had to pay a dime.鈥�
The real difference between a debit card and a credit card when it comes to fraud is in how you get your money back. When a fraudulent transaction occurs on your credit card, you have lost no money. You can report the fraud, get a credit on your statement, and the issue will never affect your bank account.
With a debit card, your bank account balance is affected from the moment the fraudulent transaction takes place. If the transactions are significant, you could experience a domino effect of financial headaches. Fraudulent charges can tie up funds so that legitimate charges are declined or cause overdrafts.
If you聽don鈥檛 have a credit card鈥�
Although credit cards are a safer bet for spending online, it鈥檚 possible that you do not have access to one. In this case, there are still ways to protect yourself from fraud.
Maintaining a low balance in the account linked to the debit card you use for online purchases can help limit the size of聽fraudulent withdrawals should they occur. This won鈥檛 necessarily prevent someone from accessing your account, but it may limit the damage done.
You may also want to disable聽any form of overdraft protection (should you have it) on the account used for purchases. Many banks offer this service (usually on a checking account), which automatically withdraws from a savings account should the checking account be overdrawn. In the case of fraud, this essentially means the crook has access to two accounts instead of one. If you do have overdraft protection in place, be sure to consult your bank on how and when it applies.
Another way to limit your liability is to use a prepaid debit card. If someone does gain access to the account, they鈥檒l have access only to what you have loaded onto the card.
The bottom line
From a legal perspective, credit cards generally provide more protection against fraudulent activity. But, there are ways to mimic some of these protections with a debit or prepaid card. Deciding which is best for you will help protect your money whether you鈥檙e spending online or swiping in store.
Kevin Cash is a staff writer at NerdWallet, a personal finance website. Email:kcash@nerdwallet.com.
