Debit cards have been around for more than 30 years, but in 2009, the use of debit cards surpassed credit card use for the first time ever, according to a report released early this month by Javelin Strategy & Research. But while reducing our reliance on credit is undoubtedly a good thing, using a debit card presents more risk than swiping your credit card. Read on to find out how. (For background reading, see Credit, Debit and Charge: Sizing Up The Cards In Your Wallet.)

IN PICTURES: 6 Major Credit Card Mistakes

1. Theft
Unlike with a credit card, if a thief is able to get a hold of your debit card and PIN, he or she will be spending your money, not the bank's. Plus, according to the Federal Reserve, if you don't report the loss within two business days, you may have to foot the bill for up to $500 of the thief's spending spree. If you fail to report the problem for more than 60 days and you could end up paying for the whole thing - not to mention the possibility of overdraft fees.

If the theft is reported in a timely way, your bank will often reimburse the funds, but getting your money back won't be instant, which could mean bounced checks in the interim. (Find out how to protect yourself from overdrafts in When Good People Write Bad Checks.)

2. Blocking
Blocks, or holds, on your debit card account occur when you agree to pay for something before the transaction actually occurs. This often happens when you pay for gas at the pump with your debit card. Because the machine has no idea how much gas you will put in, it may put a hold on your card of up to $100 to ensure that you have the funds available before giving you the fuel. The problem is, even if you only buy $25 worth of gas, that hold could stay on your card for a couple of days, leaving you unable to access that $75.

3. Less Leverage
Although debit cards can often be used much like a credit card to purchase merchandise online, they don't offer the same perks. For example, if you buy an iPod on eBay, only to find it's a cheap imitation when it arrives and the vendor who sold it to you has vanished, you may be able to take up the cause with your credit card company. In fact, federal law stipulates that you don't have to pay the bill until the dispute is settle. Because using a debit card is like using cash, even if what you get isn't what you agreed to pay for, you may not be able to get your money back. (For more insight on the benefits of using a credit card, see Credit Card Perks You Never Knew You Had.)

4. Fee for All
Although debit cards are convenient for banks and their patrons, banks still charge fees - a lot of fees. Depending on your bank and the account you choose, you may be charged for the number of times you swipe your card in a month, be subject to fees if you withdraw cash at a machine other than that of your own bank, and pay overdraft charges if you spend all your cash.

Plus, as a result of credit and debit card reforms passed under the Dodd-Frank Financial Reform Act, cardholders could end up paying higher prices for merchandise - or even pay a debit card fee. As it stands now, merchants pay 7-10 cents on each debit card transaction they make to the bank that issued the customer's card. That's much less than they pay for credit card transactions, but because the Federal Reserve wants to cut these fees down, card issuers may go to consumers to make up the difference. (This and other fees can really cut into your disposable income. Read more in Everyday Fees and How To Avoid Them.)

In Pictures: 7 Tips To Bounce Back From A Credit Score Disaster

5. Not Accepted
Although credit cards are widely accepted around the world, there are some situations where a debit card just won't cut it. Car rental companies, for example, will often require that you use a credit card. Although you may be able to pay for your car with debit, many companies prefer that you reserve with credit because of the added security this provides for the company. The same may also be true for hotels. Plus, debit cards may not always work in other countries, although this connectivity is improving very quickly. (For more on travel and payment issues, read Travel Smart By Planning How You'll Pay.)

6. No Credit
While using a credit card is a way to rack up debt, it's also a way to build credit. And, while you may not need to rely on debt to pay for gas and groceries, you are likely to need a loan for bigger purchases, such as a car or home. Unfortunately, using a credit card regularly is one of the simplest ways to build a solid credit history so that you can present yourself as an attractive borrower when you go to apply for a bigger loan. If you use your debit card, you won't get this benefit.

Debit or Credit?
Choosing between debit and credit is a bit of a catch-22. While credit cards can encourage consumers to spend money they haven't yet earned - racking up interest charges and debt in the process - they still offer a lot of security features that debit cards lack. Many debit card issuers are moving toward improving the security of these cards, such as through the recent introduction of microchip technology in some cards; in the meantime, it's up to consumers to understand that debit and credit are not the same, and to be conscientious about which card to use.

For the latest financial news, check out Water Cooler Finance: The End Of The Recession.

Related Articles
  1. Credit & Loans

    5 Credit Cards For the Super Rich

    Understand the difference between an average credit card and an elite credit card for the wealthy. Learn about the top five credit cards for the super rich.
  2. Budgeting

    Key Questions to Ask Before Moving in Together

    Moving in together is a big step. Here are some key financial questions to ask your partner before you make the move.
  3. Credit & Loans

    Explaining Equated Monthly Installments

    An equated monthly installment is a fixed payment a borrower makes to a lender on the same date of each month.
  4. Economics

    Debit or Credit at the Gas Pump: An Easy Choice

    Using credit rather than debit at the gas pump doesn't just provide more fraud protection. It also could give consumers lucrative benefits.
  5. Personal Finance

    How Sending Money on Facebook Works

    Learn how Facebook users can send and receive money within their social network, and understand how the site benefits financially from offering this service.
  6. Professionals

    Small Business: Minimize Your Credit Card Fees

    Accepting credit cards is a must these days, but small business owners can take steps to minimize profit-eating credit card fees.
  7. Personal Finance

    How Sending Money on Gmail Works

    Learn how sending money via Gmail works, and understand how Google makes money from offering this service despite it being free to use.
  8. Credit & Loans

    Does a Lost or Stolen Credit Card Hurt Your Credit Score?

    Learn the ways in which a lost or stolen credit card can hurt your credit, and understand the steps you can take to protect yourself if this happens.
  9. Investing

    Debit or Credit Card: Which to Use for Car Rentals

    Before you rent your next car, think twice about purchasing the added insurance if you're using a credit card.
  10. Credit & Loans

    5 Surprising Things That Will Hurt Your Credit Score

    Here are five ways that you can damage your credit score without even knowing it.
  1. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  2. What is the best way to start to rebuild your credit after a bankruptcy?

    Bankruptcies can be devastating to your credit score. Even worse, a bankruptcy will be listed on your credit report for between ... Read Full Answer >>
  3. What were the primary financial crimes involved in the ZZZZ Best case?

    ZZZZ Best was a company started by Barry Jay Minkow that claimed to be a carpet cleaning business. In fact, it was a Ponzi ... Read Full Answer >>
  4. Can a creditor sue me for a delinquent account?

    If a credit card account becomes delinquent, the creditor can sue the debtor for the balance as soon as the delinquency occurs. ... Read Full Answer >>
  5. How do I transfer my credit card history from one country to another?

    It is currently not possible to transfer your credit history to another country if you relocate. The credit metrics used ... Read Full Answer >>
  6. What are some examples of simple interest loans?

    Two good examples of simple interest loans are simple interest car loans and the interest owed on lines of credit such as ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  2. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  3. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  4. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  5. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  6. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!