Debit cards do everything credit cards do except let you spend money you don’t have. If you’ve read my previous posts, you know that I’ll never recommend credit cards, but these days some type of plastic is pretty much a requirement. That leaves the debit card. How do they work? Advantages? Disadvantages? Pro tips for use? Glad you asked!
How They Work in Canada
In Canada we have something called Interac. Interac started in 1984 as a conglomerate of five big banks. It went through a few changes and boring business-isms until 2018 where it’s known as the Interac Corporation today. The big hand/small map takeaway is that if you use a debit card in Canada you’re using the Interac transfer network. It has a zero liability policy which means that if your card is compromised, your bank replaces the money and does the investigation. Other countries have similar systems known as Plus and Interlink (owned by Visa) and Cirrus (owned by MasterCard). Many debit cards will have some or all of these symbols on them indicating they can be used in a variety of countries and payment or cash withdrawal networks. Depending on your bank you can usually get either a Visa Debit card or MasterCard debit card. This means that when you use the card in Canada at a store, it uses the Interac network to access your account. When using it online or out of the country, it uses the Visa or MasterCard network to access your account. At this point, Visa or MasterCard’s zero liability policy applies to any fraudulent transaction.
You’ll notice that your card has a chip and a magnetic strip. The chip is known as an EMV (Europay MasterCard Visa) chip after the three major corporations who originally scaled the technology. When you insert the chip into a reader at the store, the store doesn’t get the opportunity to store your card number. The transaction is completed by sending a different one-time unique number through the network to access your account. Major retailers have experienced breaches and customer card numbers were stolen. This can’t happen with a chip card. The chip also lowers risk in that you need to be present to enter your PIN as a dual-factor authentication and there is no need for a shady merchant to swipe the card behind a counter out of sight. Admittedly thieves can still copy data from the magnetic strip so beware. If reasonable precautions are taken and fraud does occur, either Visa, MasterCard or Interac’s zero liability policies would apply.
Debit Card Advantages
You can’t go into debt. That’s the big one. Once the money runs out, the card stops working. But what if something comes on sale and you can’t pay for it right now? Isn’t paying off a credit card like forced savings in reverse? Oh, you mean buying a luxury item you don’t require to survive with money you don’t have? Don’t even start with me… If you go to buy something with a debit card and there’s a nagging voice in your head wondering if there’s enough in the account that might be a sign that something needs to change.
Disadvantages
Debit cards do have some disadvantages however. Recently we went on a trip to Costa Rica. I used my Visa debit card online with Amazon, VRBO, Air BnB, Air Canada and Makanda By the Sea (look it up, highly recommended), not to mention stores, restaurants and taxis with no issues. The only time I couldn’t use it was on the Air Canada flight home to buy food and to renew my passport online (had to go to the passport office).
Hotels and rental cars can be another story however. I have had inconsistent luck with using a debit card checking into hotels in Canada so recently I interviewed a number of hotel managers. Most will not take a debit card to check in. You can usually reserve the room online and pay for the room at the end with debit, but a credit card is usually required at the front desk. There are two main reasons for this. First, they’re concerned that you will check in, trash the room, empty your account and make it difficult to recoup the cost. Second is human trafficking. One manager was involved in a few cases and the only time he made an exception was a lady and her kids escaping domestic abuse. Pre-paid credit cards are also not accepted for the same reasons. Interestingly, if you have a Canadian Visa debit card it will work for hotels in the US. If you have a US Visa debit card, it will work for hotels in Canada. A Canadian Visa debit card usually won’t work for hotels in Canada. If you do keep a credit card around specifically for this reason, don’t fall back into the same thought patterns that got you into this mess in the first place and led you to read this article…don’t even start with me about points and miles!
I got into a debate with some bank employees about this stuff (making friends wherever I go) and they mentioned paying fees with a debit card outside of Canada. We looked into it and with my specific grandfathered account I don’t pay any. But it got me thinking. I made about 20 transactions outside of Canada during the trip. The bank initially thought I paid either 2.5% on each transaction or $3.00 per transaction. Even if either of those things were true it would have added up to a rounding error in the grand scheme of the vacation (a luxury item we planned for months in advance). If you are buying ‘stuff’ and spending a bit more on it bankrupts you, maybe you need a new plan.
marksdailydollar.com 