The pros and cons of debit card use

[LRE]

By Roy Gaunt, Special To Gulf News
Published: 00:00 December 5, 2009


Question: I have noticed that many UAE-based banks are making active moves to encourage their customers to use debit cards. I have been contacted by my own bank a few times about this, but I've always shied away from this. What are the pros and cons?

Answer: Banks in the UAE are making moves to fall in line with other developed nations where debit cards have become the normal method of payment for everyday goods.

For banks having their customers use debit cards makes sense in terms of better customer service, as it allows people instant access to larger amounts of money, without the bank having to be open for them to collect their funds.

Debit cards also offer greater security in terms of diminishing the need for people to walk around with large bundles of cash that can easily be lost or stolen, which some would argue makes debit cards a safer way for consumers to shop.

Modern life also makes the case for debit cards stronger, with a growing number of people moving to online shopping. Booking flights for instance is now largely done via airline websites — without a debit card or a credit card this would necessitate a time-consuming trip to the travel agents with a wallet full of cash.

However, where there are benefits there are also downsides. Fraud on debit cards is still a major issue world-wide, and in the UAE there were particular problems in September 2008, when six banks saw a rise in fraudulent ATM withdrawals being made from abroad on UAE accounts.

What this highlights is the importance of determining the refund terms your bank has in the unfortunate scenario that a fraudulent act takes place. Some banks will replace the money in a swift and efficient manner, but others may take months to replace the funds, and some may never recover the loss.

It is essential to read the fine print on any debit card agreement before signing-up, as banks often stipulate that you must report any suspected fraud, loss or theft within 48 hours of the event, for them to be held responsible for recovering the funds.

Extra insurance can be taken out to cover fraud, loss and theft of debit cards, and this is something many banks offer. But remember this will cost you extra premiums per month, on top of any other insurance cover you may have. It's wise to check if your home contents insurance already covers this before agreeing to this extra payment.

On the subject of extra payments, unlike cash, when you pay for goods with a debit card the money is instantly deducted from your bank account. The transfer from you to the merchandiser is pre-authorised, which means that if you do not have enough money in your account the transaction will still go through.

This can tip you into overdraft, or below your agreed level of current account funds, for which the bank will charge you fees. In this way banks make profits on debit cards, and some cynics argue that this is the reason banks are keen to get as many customers as possible signed up.

Whatever you decide, there is clearly much more to think about with debit cards than it at first appears. The underlying advice from independent financial advisors is always to be ‘finance aware' — make sure you know how much money is in your current account before you go out shopping, set yourself a realistic monthly budget, and stick to it, and at all times be security conscious when using debit cards, credit cards, or walking around with cash.



The writer is Chartered Insurance Broker, at Nexus Insurance Brokers L.L.C.. Views expressed here are his own and do not necessarily reflect that of Gulf News. If you have any questions, please e-mail to advice@gulfnews.com


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