i f you're still carrying around wads of cash or a bulky checkbook, you might want to consider a debit card for shopping. While there's a 50% chance you already have one, there's also a good chance that you're not familiar with its features. What exactly are debit cards and how do they work?

Debit (or check) cards are the younger hipper siblings of ATM (automated teller machine) cards. For years consumers have been getting cash, checking balances, or making deposits with ATM cards.

You also can use your ATM card when you buy something at a store by swiping it through the merchant's machine in the checkout lane, and keying in your PIN (personal identification number). The money is deducted from your credit union account—no muss, no fuss, unless of course you're short on funds, then it's no sale.

If your card has a MasterCard or Visa logo on it, it offers all the ATM features, plus you can use it at any store that accepts those credit cards. Merchants ring up your sale just as they would a credit card purchase, you sign the slip (no need for your PIN), and you're good to go. Although most merchants still check your available balance as they do for ATM transactions, the money is debited, or deducted, from your account immediately or within two or three days.

The benefits
Debit cards can help you manage your money. Let's face it, cash flies out of wallets. If you're like most people, cash-in-hand soon transfers to someone else's. Carrying a debit card instead of large amounts of cash might make you stop and think before you hand it over.

Debit cards save time. You'll love debit cards if you hate handing over a major credit card and your driver's license each time you write a check and then waiting impatiently while the clerk writes the information down, then eyes you disapprovingly for lying about your weight. If you use your debit card as an ATM card, your PIN is all the identification required. If you use it as a debit card, your signature seals the deal.

They're easier to get than credit cards. If your credit history is shaky, or you're too young to have an established credit history, debit cards give you the convenience of credit without the risk. Since the money is debited from your credit union account, you also can establish or improve your credit worthiness by using the card responsibly. Many credit unions offer them to members who open share draft/checking accounts.

They help check overspending. With a credit card, you can freely spend way more than you can afford, and you won't even have to face up to it until you get your next bill. Debit cards help keep spending sprees under control because your ability to purchase is directly linked to your ability to pay.

Easy returns. Merchants treat returning goods or canceling services purchased with a debit card as if you made the purchase with cash or a check, according to the National Consumers League, in Washington, D.C.

The drawbacks
Watch out for fees. Some issuers and merchants may charge fees for making debit card purchases. Ask about fees and shop around for the best deal.

Dispute resolution may be stickier. According to the National Consumers League, "Using a debit card may mean you have less protection than with a credit card purchase for items which are never delivered, are defective, or were misrepresented. But, as with credit cards, you may dispute unauthorized charges or other mistakes within 60 days. You should contact the card issuer if a problem cannot be resolved with the merchant." Major credit card companies may offer consumers the same protections for non-ATM debit card purchases as credit card purchases, but, says Holly Anderson, National Consumers League communications director, it's a voluntary policy that can be stopped at any time. "We want consumers to know about their protections under federal law."

Debit cards are safe(r). Federal law limits your liability to $50 if you report the loss or theft within two business days; after that, but within 60 days, your liability can jump to $500. After 60 days, you could lose all the money that was taken from your account. Now Visa and MasterCard voluntarily offer U.S.-issued credit and debit cardholders 100% protection against fraud, upping the protection afforded by federal law. MasterCard and Visa's zero liability extends to any purchase you make using your card for purchases in a store, over the phone, or online.

You're covered as long as you have an account in good standing; you have exercised reasonable care in safeguarding your card, and you have not reported two or more unauthorized events in the past 12 months. This zero liability provision does not cover PIN-based ATM transactions.

Protect yourself
No matter how many protections are in place, nothing replaces good old common sense. Even if you can get your money back, or won't be held liable for unauthorized use, you'll still have to deal with the hassle of winding your way through the system to get your financial affairs back in order.

  • Guard your PIN. You'll be issued a PIN with each debit card, which you can either keep or go to the financial institution and change. If you change it, don't pick numbers that match your birthday, address, phone number, or Social Security number—thieves aren't dumb. Memorize your PIN, and put the written PIN in a safe, accessible place in your home. Don't carry it in your wallet or write it on your card! According to the Federal Trade Commission, "Statistics show in one-third of ATM card frauds, cardholders wrote their PINs on their ATM cards or slips of paper kept with their cards."

  • Keep your receipts. Nothing spells disaster like unrecorded purchases. Use your receipts to enter all transactions into your checkbook register, and keep them until you compare them against your monthly statement. Don't toss them in the trash at the store or at home—thieves don't mind dumpster diving for card numbers.

  • Report lost or stolen debit and credit cards immediately to your financial institution. Never give your credit or debit card number out over the phone unless you placed the call and expect to be charged for something. Don't fall for the line that someone needs your card number for "verification" purposes.

  • Use a secure browser when you shop online. Before you enter your credit or debit card number on the checkout screen, look for the lock or key at the bottom right of the screen or look up to the URL address line to see the letters "https." These symbols tell you you're at a secure site and your financial data will be encrypted for your protection.

  • Never send your account information via email—it's not secure.

  • Carry only the cards you need. Keep a list of all your card numbers and issuing institutions at home in a safe place.

     Debit (or check) cards
     are the younger
     hipper siblings of
     ATM (automated teller
     machine) cards.

     Debit cards give you
     the convenience
     of credit without
     the risk.

     Debit cards directly link
     your ability to
     purchase to your
     ability to pay.

     Federal law limits your
     debit card liability
     to $50 if you report
     the loss or theft within
     two business days.

© 2001 Credit Union National Association Inc.