According to a recent survey, debit is now the preferred payment type in most point-of-sale locations, beating cash, credit cards and checks. However with the recent controversy over debit card fees, more consumers are confused about which type of payment to use for shopping and travel.
With the holiday travel and shopping season approaching, below are some tips to help you better understand the differences in debit cards and credit cards, and which type of card is better to use in certain situations.
Debit Card Holds– A debit card hold is a freeze on funds associated with a debit card until a transaction successfully clears or “settles,” in banking terminology. Holds are used to ensure that customers have enough money to cover transactions. Banks have individual policies on how long funds can be held in this way, and commonly holds are in place for less than 24 hours although they may last up to a week. Similar holds, also known as blocks or preauthorizations, can also be seen with credit cards.
Debit card holds can cause problems when funds are frozen, thus limiting your available cash from your checking account. Overdraft fees can add up quickly when other debit transactions go thru immediately and you still have “holds” on previous purchases.
Common Debit Card Holds
- Restaurants—this happens to cover the gratuity
- Gas Pumps—usually only happens when pre-paying at the pump and you do not put in your PIN, although some gas stations can hold up to 150.00 for up to 72 hours regardless if you put in your PIN or not.
- Hotels—a hold is almost always placed when a debit is used to reserve/pay for a hotel. This is to cover any incidentals such as room service, etc—fees that may not be known at the time payment was made at the point of reservation or check in.
- Rental Cars—a hold is almost always placed when using a debit card and can be as much as 200+ dollars. This hold can last up to 72 hours after the car has been returned.
- Online and phone payments—anytime you use your debit and do not have the option to put in your PIN number a hold is typically going to be placed on the card in addition to the amount purchased depending on the vendor and/or bank.
Let’s look at a scenario. Say for example you are getting ready to go out of town for the holidays and you plan on paying for everything with your debit card. You have 1000.00 in your checking account.
- Hotel reservation: 100.00 per night x 2 nights = 200.00 (hold: 200.00)
- Car Rental: 35.00 per day x 2 days = 70.00 (hold: 200.00)
- Gas: 50.00 per fill up (hold: 150.00)
- Meals: 4 meals at 25.00 each = 100.00 (hold: 10.00 each meal = 40.00)
While you may think you have spent 420 dollars, leaving you with 580.00 available cash in your checking account, due to the various holds placed totaling 590.00 you actually wouldn’t have any available cash for your trip and could be charged overdraft fees if any purchases are made, or your debit card could be denied for insufficient funds!
When traveling, it is better to use a credit card for gas, car and hotel reservations, and for all online purchases.
REMEMBER: Anytime you do not have the option of putting in your PIN, a hold will be placed on your account until the transaction has been cleared.
If you do not want to use a traditional credit card, a great alternative is a pre-paid credit card. A prepaid credit card is a VISA or MASTERCARD that be “loaded” with a certain amount of funds and can be used just like a traditional credit card.
Benefits of using a prepaid credit card
- You set the limit thus ensuring you stay within your budget
- Lessens the likelihood of ID theft because it is not attached to your personal information.
- Keeps your available cash in your checking account free from “holds”