HOW TO STOP A DEBIT CARD FROM DRAINING YOUR ACCOUNT
By ELLEN STARK

(MONEY Magazine) – THIS MONTH: --How to win a bidding war for a house --Don't fall for sneaky card tricks.

Debit cards--those handy pieces of plastic that electronically tap your bank account for the cost of your purchases--are making their way into more and more wallets. More than 67 million Americans now carry them, up from just 13.4 million in 1992. And their popularity is likely to grow now that Visa and MasterCard have taken steps to limit the damage to your bank balance when your card is lost or stolen. But even with the new protections, the cards are still far from hassle-free. Here's what you need to know to guard against debit debacles--and why it's still sometimes smarter to pay with a credit card.

--Your ATM card may now be a souped-up debit card. Take a close look at your ATM (automated teller machine) card: It has probably morphed into a debit card. Over the past three years, most banks have converted their basic ATM cards to combination ATM/debit cards. You know your card's a hybrid if it bears a Visa or MasterCard logo along with the bank's name. These combo cards can be used for purchases as well as for ATM transactions. But the debit feature makes these cards a lot less safe. Here's why: When using an ATM, you must enter a personal identification number (PIN). But when you make a purchase with a debit card, you simply sign the receipt, just as you would with a credit card. That means a debit-card thief may be able to drain your entire checking account simply by faking your signature.

If you are uncomfortable with that risk, consider asking your bank to switch you back to a basic ATM card. (By the way, you may still be able to pay for some purchases with your ATM card; many supermarkets and gas stations, as well as the U.S. Postal Service, Super K Mart Centers and Wal-Mart Stores, are hooked into ATM networks. When you use your ATM card at one of those outlets, you must still enter a PIN.) Another option may be to lower the spending ceiling on your debit card, thus reducing the amount a thief can get his hands on quickly. Currently most banks give you a daily cap of at least $1,200, which is probably far more than you need. (Some banks may not allow lower daily limits. The table below highlights the debit-card policies of the nation's 10 biggest issuers.)

--Even though your liability is limited, it can take weeks to get your money back. As noted above, Visa and MasterCard have taken steps to keep you from being wiped out by a lost or stolen debit card. Starting in January, MasterCard debit-card customers who report the card loss (or money missing in their account) within 24 hours of discovering it will have zero liability for fraudulent debit-card charges. Visa has eliminated all liability for both its debit cardholders and credit-card customers, as long as you report the fraud within two days of discovery. If you fail to make a timely report, your maximum loss is $50 with both Visa and MasterCard.

Under federal law, however, banks can take up to 20 business days to investigate a debit-card fraud claim and return the stolen money. In practice, most banks will give you a provisional credit in one to five business days. (By next spring, Visa will require its issuers to offer a provisional credit within five business days. MasterCard has not mandated a shorter timetable.) While five days is sooner than 20, it can be a long time to wait when bills are due. So you may want to switch to a bank that will credit you promptly. And if you have spare cash, consider keeping an emergency stash in a money-market account that is not linked to your debit card. That way, you can transfer funds to your checking account while you wait for your money to be returned.

--You may be stuck with fees for bounced checks. No matter how rapidly a bank acts to make you whole, you may bounce a few checks before the funding comes through. Fortunately, most major banks will waive their own returned-check charges in cases of debit-card misuse. But as the table on page 45 shows, bank policies vary when it comes to bounced-check fees charged by the firm that deposited the check, such as your electric company. First Chicago NBD, for example, will waive such charges, but PNC Bank will not. Bank of America and NationsBank consider such refunds case by case. So be prepared to do battle with your bank if necessary.

--A credit card still offers key advantages. Even if you swear by the convenience of digital dough or simply prefer to avoid interest charges, don't cut up all your credit cards. The old-fashioned charge-it card still offers benefits that its debit double does not. For one thing, you cannot build a credit history with a debit card, since you aren't borrowing money. And some merchants, including rental-car agencies Avis and Hertz, refuse to accept debit cards because they are not a measure of creditworthiness. What's more, by using a debit card, you may lose the option to withhold payment for faulty or undelivered merchandise. Although debit cards are now more consumer-polite, credit cards still give you the best consumer protection.