Debit card débâcle - a cautionary tale
 

The plan: use card A (the one with no fees or currency markup) until that checking account is emptied, indicated by a charge being declined. Then switch to card B.

The reason: so we don't have to waste our vacation time tracking exchange rates to keep our running balance accurate to the penny.

The problem: when a purchase is authorized, the amount is deducted from the available balance. But (and here's the rub) not forever. If the merchant doesn't settle the transaction within 48 hours, the amount is restored to the available balance <i>but the liability is still outstanding</i>. Thus it is possible to spend down the account so that when the transaction finally hits it, an overdraft condition is created by a ticket that wasn't settled within 48 hours (in our case, two overdrafts).

The result: our trip cost us $58 more than we had anticipated (for the overdraft fees).

The warning: your available balance don't mean squat. Deduct your expenditures from your checkbook in a ballpark way (for example, assuming $2 per &pound; or $1.25 per &euro;).

Hi R,

Why would you want to use a debit card when you could use a credit card and pay for the trip after you get home?

Necessary cash can be gotten from an ATM machine.

((I))

Amen, Ira, for about the 300th time.
BTW, last trip to the ATM/CC here in MX
got a rate of 10.69 for cash from the ATM and 10.81 for two CC transactions on the same day: largest spread in my memory.
Both USAA.
M

That is a good cautionary tale for those doing this scheme and who don't keep track of the checking acct balance. Knowing you, Robespierre, I bet this really really hurt.

I'm in the camp of those who can't figure out why anyone would do this, or be running checking accounts so close to being depleted, in any case, if you are depending on a machine to tell you your balance or you will overdraw.

I guess I'm missing this.

If your budget is $X, why didn't you put $X + some fudge into the account for card A?

Well, I suppose there's no way that you'd know $X in advance, but you've some idea.

Or are you the sort who thinks that putting more money than you need into that account is not efficient, and you lose interest or something?

Needless to say, I manage my money quite inefficiently. But my usual mistake is not having very much money in my checking account. Sometimes ATM withdrawals draw from my checking account (when abroad). I've my money in money market accounts and sometimes forget to transfer funds, and on a foreign ATM, you sometimes can't specific which account you want to take the cash from.

This hasn't really happened recently though.

My dear Robespierre:

I'm shocked to find out that this happened to you. You have always been a model for those trying to keep expenses to a minimum by accounting for every penny.

Now I don't feel so bad for being the financial slouch that I am.

This is the first time I've read why an 'available balance' isn't necessarily 100% available. For those of us who use debit cards, it's useful information.

It's easy to track expenses in the check book when using home currency, not so easy to figure out the fudge factor when there's a foreign exchange transaction involved.
One can put a very large extra amount into the debit account, but then one is also running a greater risk should there be fraud.

I do mostly use the credit card for purchases, but the debit card gives me FF miles on purchases (not on atm transactions), so that's why I sometimes want to use it when making a big purchase. &quot;They&quot; have us one way or another.

Account B is a money market account. I estimated X based on a few hundred previous trips, and when we decided to spend X+Y, I thought we were covered (by The Plan - see above).

elaine: &quot;One can put a very large extra amount into the debit account, but then one is also running a greater risk should there be fraud.&quot;

Yes, that's a good point. I can't dispute that.

But then, was the extra $Y a pretty sizeable fraction of $X? I'd have assumed that some fudge factor would have covered this.

And I guess A &amp; B are not linked? Otherwise, why not transfer some money over?

Of course, hindsight is 20-20, as they say.

By the way, are you sure about the accents on the &quot;e&quot; and &quot;a&quot;?

I've not had the time to Google. :-)

I just found out what Robespierre mentioned regarding &quot;available balance&quot; in ones checking account when using a debit card. A young family member does not keep track in his checkbook (in spite of his mothers nagging him to do so). He consequently became overdrawn on his checking account. I didn't understand how this could happen until it was explained to me, as Robespierre has mentioned here. I would think that being &quot;overdrawn&quot; could go on your credit record also? Does anyone know.

A and B are two different financial institutions. Y is (a lot) more than X. I can say no more.

Ok, you can say no more, but I must say that I find it puzzling that your trip ended up costing at least twice your estimate.

(Y &gt;&gt; X, so X + Y &gt;&gt; 2X?)

Doesn't make much sense to me, honestly.

But well, presumably X &gt;&gt; $58.

I hope you enjoyed your trip!

Actually, you know what, what I said isn't strictly true -- of course X is not the entire budget for your trip (you prepaid for your tickets; you had cash, etc.).

But I guess I'm still puzzled that you could have misestimated the rest by a factor or more than 50%.

Anyway, what matters in the end is whether you had a good time.

I used my debit card from my 'travel funds only' account. I determined in advance what the approx value in euro would be for my $balance. I used the card for 3 ATM withdrawals and used that cash to pay for nearly everything. That was easy enough to keep an idea of remaining balance so I used it for about 3 store purchases. At that point, it was iffy whether it would now cover the hotel bill so I did use a credit card for that. Then paid that off upon returning home.

This is the first time I have ever paid essentially 'cash' for a Europe trip and not carried any balance over. It felt great! I prefer not to rely on my 'discipline' to use credit first, then pay later as that has failed me in the past ;)

Now if I can stick to my plan of 'no travel until the account is funded' I will be in excellent shape.

Travelnut, that's exactly what we did. I too have the problem of waiting till it's completely funded first...

I understand what you are saying, but I have overdraft protection for my checking account. If for some reason as you discussed above the bank has to dip into the overdraft funds, the interest on that is minimal, minimal, minimal when I return and pay it off.

Even if I use my CC for a cash advance, at 9-10%, when I pay it off when I return, it equates to less than 1%, which is less than some fees some pay just to use their cards. ((b))

And another thing, it is my understand that once you use your debit card (with pin) the funds are immediately debited from your checking account. You must be referring to the Visa/MC portion of the debit card which could take a day or two to clear your checking account. ((b))

<i>Tout est bien qui finit bien.</i>

After some hours of judicious lawyering, I managed to get the bank to credit back the overdraft charges. Hardly worth my time, but I was defending my honor.

IN PARTICULAR, the Cardholder Agreement in force between the bank and me at the time of the transactions states that the institution will &quot;make good&quot; (a banking term of art) any transaction for which a valid authorization is received.

(111op, did you get a chance to Google the acute accent and circumflex on <i>d&eacute;b&acirc;cle</i>? Perhaps further study in this area would be beneficial?)

Moral of the story: Just keep a running balance and approximate a bit more. I do this and have no problems with my balance.