Last week, I came across an interesting post on the Personal Finance Subreddit. The titled, $27,090.76 fraudulent claim DENIED by Capital One. What do I do? As the Reddit Poster did the play-by-play of what happened with his account, I knew the plot twist before I got to the ending: his son had racked up that amount on an app.
The Reddit Poster did not want to believe that his son was the culprit. After conducting his AMA, it became apparent that this is what happened. His son’s denial led to his disbelief even though Capital One was adamant that no fraud was committed and he was responsible for the charges.
After reading this, it reminded me that when it comes to our credit health, we sign up for monitoring services, pull our credit reports annually but we somehow manage to neglect the more important of the two: our checking account.
Credit Card vs Debit Card
Banks are clever. When they turned the basic debit card into a credit card their fees went through the roof. If we use our credit card at a store, the issuing bank receives a percentage of the sale. If we use the debit card posing as a credit card, they get that same percentage.
However, if we use our debit card posing as a credit card but select debit to make that same purchase, the issuing banks make a per-transaction fee that amounts to approx. 25 cents. That’s peanuts and explains why Chase offered me an incentive one month to select credit.
That’s the difference for the banks. What about the difference for us?
The real credit card charges show up on your bill a few weeks later. Then we have an additional few weeks to pay it. The debit card charges get taken out of our checking account immediately.
If there are fraudulent charges on our credit card, the charges are reversed right away as long as we informed them of the fraud within 60 days. During the pandemic, I have had countless packages stolen by porch pirates. Each time it happened, I alerted the credit card company and they got rid of the charges.
With a debit card, we have 60-days to report the fraud. Since the charges come out of our account our money is in limbo during the investigation.
One month, in error, I forgot to include my rent increase. I use online bill payment and haven’t had checks for years. When I called Chase to cancel the check, they informed me that I needed to wait five days to get my money back.
I couldn’t believe it, I had to wait that long to get back my own money? If I didn’t have enough money in savings to cover my rent it would have cost me an extra $100 in late fees.
Now if it took that long to get my own money back, how long would it take to get it back if the banks have to conduct an investigation? The Reddit Poster had to wait three months to hear: “sorry, you are liable for the charges”.
How to Safeguard Your Debit Card and Checking Account
Monitor your account. This was the biggest mistake by the Reddit Poster. He didn’t check his bank account. I check my checking account every payday. If I notice something out of the ordinary, I can put a stop to it ASAP.
Don’t keep huge amounts in your checking account. Unless it is an interest checking account and even then, with these low-interest rates, it is not a good idea to keep a high balance. Upon receiving my paycheck,
I keep what is needed to pay my bills, and everything else gets transferred to the appropriate account.
Set up text alerts. Go to your online banking. Locate privacy/security and set up an alert for your debit card as well as your checking account. I set a debit card alert of $100. I selected that amount based on my ATM habits.
The odds of me pulling out more than that per month are slim so if I get an alert for more than that amount then I know that something is wrong with my account. Another good one to set up is an alert on outgoing transfer amounts.
Disable overdraft protection. I know. I know. It comes in handy for some people, which is another issue at hand but if there is fraud on your account and you don’t know about it your connecting account will allow the transfer.
The bottom line…
The lesson to learn from the 27k Reddit Poster is to take precautions when it comes to your checking account. If you don’t have time to monitor your account, the best option is to set up an alert. That way, you are in the know. If there is fraud or in the case of the Reddit Poster a lack of awareness of the charges, this will minimize the damages.
It’s better to be out a few hundred dollars than several thousand. The latter situation causes a domino effect where you may have to scramble to pay outstanding bills.