Today the average American has an average of three credit cards, a couple of debit cards, and some prepaid cards in their wallet. If you’re one of these people you may be looking for some guidance as to which methods of payment to use on any given occasion to balance your spending and finances.
One thing that you maybe haven’t considered is the impact that your payment methods can have on your personal security and your vulnerability to fraud. Are debit cards more secure than credit cards, or vice versa? Do prepaid cards protect you from having your identity stolen altogether?
Whether you’re one of the millions of Americans who uses multiple cards for different payments or you’re considering switching to a new method, there are some security concerns that you should be aware of. That’s why we’ve created this guide to security and debit, credit, prepaid, and secured credit cards to answer all of your questions about the best methods of payment. We’re here to help keep both your spending and finances safe.
Paying with a debit card is probably the safest way to keep track of your finances because it is linked directly to your bank account. By using debit cards you don’t have to worry about getting too far into debt without being able to pay it back or accumulating interest.
Unfortunately you can find yourself with massive overdraft fees if you’re not careful with your spending. It’s easy to avoid overdraft fees though if you manage your spending accordingly and link your debit card to an alternative savings account in case you unexpectedly run out of money.
Another downside to debit cards is that they are not great when it comes to protecting users from fraud. As long as you report fraudulent activity within 2 business days you will only be liable for $50 of fraudulent spending. Two days are not a very long time though, and you could easily miss suspicious activity unless you check your statement every day. This means that you could lose all of the money in your bank account unless you report the money stolen within 48 hours. For this reason, debit cards are particularly unsafe when it comes to protecting you from fraud.
Credit cards are an especially great resource for careful spenders because they allow you to build credit, something that is necessary for any big investments down the line in a home or a car. The ability to create a great credit score is an important investment in your future, so careful credit card spending is a safe way to contribute to your long-term financial stability.
Additionally, credit cards are far safer when it comes to protecting you from fraud than debit cards, which is a huge plus! Your total liability for fraud is still $0-$50, but it does not have to be caught and reported as quickly as in the case of debit cards. We do recommend reporting credit card fraud as quickly as possible though to protect yourself.
On the downside, credit cards are notorious for running people deep into crippling debt quickly. Credit debt builds: if you don’t pay your bill on time you’ll have to pay a fee and your debt will accumulate interest. If you are incapable of paying a credit card bill on time it is better to spend only money that you already have instead of borrowing it. It’s safer to put off building credit for a while until you are in a position to keep up with payments.
Prepaid cards are becoming increasingly more popular especially for low-income individuals. If you cannot open a bank account because of your financial history you may rely on a prepaid card instead of worrying about carrying obnoxious amounts of cash around. They are also great at protecting from overdraft fees because it’s just not possible to overdraft!
Prepaid cards are a dream when it comes to fraud protection in some ways, but they can be a nightmare for others. The card is not linked to your bank account, so the most money that can ever be stolen from you is the amount that you put on the card. There is a huge downside to these cards though, because you have virtually no fraud protection provided by the card issuers. If the card or the card number is stolen you will not be reimbursed for anything.
The worst thing about prepaid cards is the fees. On average, prepaid card users will be charged $300 a year in fees—transaction fees, withdrawal fees, activation fees, you name it, they charge for it! Most of these fees can safely be avoided by using a debit or credit card. Alternatively, you could get an American Express Prepaid Card which only charges $2 ATM fees and will save you a lot of money in comparison with most any other prepaid card.
A secured credit card is a sort of hybrid between a prepaid card and a credit card. You put money onto your account—say $1,000—and then you can only spend $1,000 but build credit in the process. These cards are useful for people with bad credit or young people just starting to build credit because they ensure that you do not overspend while still allowing you to build your credit score. This makes them an exceptionally safe option for building credit. Some secured credit cards also provide $0 fraud liability, like US Bank Secured Visa Card.
The combination of protection against overspending, $0 fraud liability, and the freedom to build credit without going into debt makes the secured credit card our top choice for the safest card.
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