Consumer Decision Making Contest
2001-2002 Study Guide
The popularity of ATM (automated teller machine) and debit cards is rising. ATM cards have a
longer history than debit cards, but the National Consumers League estimates that two-thirds of
American households are likely to have debit cards by the end of 2000. It is expected that debit
cards will rival cash and checks as a form of payment.
In the future, “smart cards” with embedded computer chips may replace ATM, debit and credit
cards. Single-purpose smart cards can be used for one purpose, like making a phone call, or
riding mass transit. The smart card keeps track of how much value is left on your card. Other
smart cards have multiple functions - serve as an ATM card, a debit card, a credit card and an
electronic cash card. While this Study Guide will not discuss smart cards, they are on the
horizon. Future consumers who understand how to select and use ATM and debit cards will
know how to evaluate the features and costs of smart cards.
ATM and Debit Cards and How They Work
Electronic banking transactions are now a part of the American landscape. ATM cards and debit
cards play a major role in these transactions. While ATM cards allow us to withdraw cash to
meet our needs, debit cards allow us to by-pass the use of cash in point-of-sale (POS) purchases.
Debit cards can also be used to withdraw cash from ATM machines. Both types of plastic cards
are tied to a basic transaction account, either a checking account or a savings account.
Some consumers confuse a debit card with a credit card, especially when the Visa or Master Card
logo appears on the card. Although they look like credit cards, debit cards or ATM cards have
nothing to do with credit. When you use a debit card, you are using your own money from your
own checking or savings account. The word “debit” means “subtract”. Each time you use your
debit card, the amount of your purchase or withdrawal is subtracted from your checking or
savings account. Another way to think about the difference between a credit card and a debit
card is that credit cards allow you to “pay later;” with debit cards, you “pay now.”
When you buy something using a credit card, you receive a monthly statement listing all of your
charges and you are obligated to pay your bill by a certain date to avoid additional fees. If you do
not pay your balance in full each month, you are charged interest plus any other applicable fees.
The most popular use of ATM/debit cards is for cash withdrawals from an automated teller
machine. But debit cards are widely accepted at grocery stores, gasoline stations, restaurants and
retail stores. They offer a convenient alternative to carrying around cash or taking along a
Automated teller machines have become our personal bankers. They allow us access to our
funds 24/7 (24 hours a day, 7 days a week). All we need is an ATM card and a personal
identification number (PIN). Some ATM machines allow us to make deposits, check account
balances, get cash, and transfer money. Other ATM machines only give out cash and are
commonly found in high-traffic areas such as convenience stores, movie theaters and hotels.
Using your ATM cards in these locations often has high transaction fees.
Fees and surcharges associated with the use of ATM machines has drawn national attention.
Consumer groups are serving as “watchdogs” of surcharge trends and Congress has held hearings
on the matter. The main issue is that ATM surcharges are not adequately disclosed to
consumers. If consumers know they may be charged $3.00 to withdraw $10.00, they might make
a different decision. The national ATM networks and most regional networks require that ATM
surcharges be disclosed by a notice that appears on the ATM screen and by a sign on or near the
ATM itself, but studies have shown that the information is not always disclosed in an easily
understood or conspicuous manner. Some consumers don’t realize the surcharge is IN
ADDITION TO what they are already paying their own financial institution in transaction fees.
This issue will continue to draw attention.
Getting cash from your institution’s ATM. Most financial institutions put a limit on how
much cash you can withdraw in a single day. Your financial institution’s ATM machine may
only give cash to you in $10 or $20 bills. If you need more money, you can still get it in a single
transaction by indicating the amount you need.
Getting cash from other ATM machines. Your financial institution may be part of an ATM
network that allows you to access your account from other locations, cities, states or foreign
locations. Network names to look for include Star, Cirrus, and Plus. Remember that using an
ATM machine not owned by your financial institution will probably cost you more money
because of the extra transaction fees. Even if the machine is part of your institution’s ATM
network, you might have to pay fees to your institution in addition to fees to the institution that
actually owns the ATM machine.
ATMs and personal safety. In addition to keeping your ATM or debit card in a secure place
and memorizing its PIN number, you should always be on alert when you use an ATM machine.
Other people may be watching you. Cover the ATM key pad when you type in your PIN number
so no one else can see it. Avoid using ATM machines at night, especially if they are in dark, out-
of-the-way places. The Financial Services Education Coalition notes that some police station
lobbies have installed ATM machines.
More About Debit Cards
Debit Card. A debit card is a plastic card that can be used in automated teller machines (ATMs)
to withdraw cash or at point of sale (POS) terminals in retail stores to buy something. Some
merchants allow you to obtain cash when paying for a POS purchase with a debit card, but may
charge you a fee. Debit card transactions are automatically debited (subtracted) from your
checking or savings account. Debit cards are often called check cards when they are connected
to your checking account. They offer convenience to the consumer and can be used where it may
be inconvenient or impossible to write a check, such as in foreign countries. Debit cards can
generally be used wherever you see the symbol or name on your card posted on a store door or
cash register. Normally you will not have to provide additional identification when using your
There are two main types of debit cards: the PIN-based debit card and the signature-based debit
PIN-Based Debit Cards use a Personal Identification Number (PIN) to authorize the transaction.
The transaction amount is then immediately deducted from your account. If you do not have this
type of a debit card, ask your financial institution if you may obtain one.
Signature-Based Debit Cards use your signature to authorize the transaction. The transaction
amount is usually deducted from your account within two to three business days following the
transaction. To obtain this type of debit card, you may have to meet special requirements, such
as a satisfactory credit history, an account in good standing and/or have an established account
for a certain length of time. Ask your financial institution for more information.
As with many goods and services, comparison shopping is the best rule. This practice also
applies to ATM and debit cards. There are many types of cards available, all with their own set
of terms and conditions and costs. It is important for consumers to know their needs before
selecting either an ATM, debit or combination card. If all you want is to withdraw cash
occasionally, then an ATM card may meet your needs. If you want to avoid having to write so
many checks, a debit card may be a better choice. Likewise, knowing where you plan to use the
card should influence your decision. Do you plan to use your card away from home and will
such use cost you extra money in fees and charges? Or does your financial institution have
branches in other places where you can continue to use your card free of charge or with modest
Guidelines for Comparing ATM and Debit Cards. Compare at least four different financial
institutions to know where you can get the “best deal” on ATM and/or debit cards. The
following table will help you to organize the information you will gather about your options. If
you currently have a checking or savings account but do not have an ATM or debit card, check
with your financial institution to see if you qualify for one with your present type of account or if
you must open another type of checking or savings account.
Which accounts offer ATM
Which accounts offer debit
Which accounts offer both
ATM and debit cards?
Can I get one card to serve
Is the debit card PIN-based,
signature-based or both?
What is the monthly or
yearly fee for this account?
How much is the transaction
fee at institution-owned
How much is the transaction
fee at ATM machines
belonging to the same
How much is the transaction
fee for using a debit card to
make point-of-sale (POS)
How much will it cost to get
money out of an ATM
machine NOT owned by my
Can POS purchases be made
with the ATM card and is
there a fee?
Are there any other fees
associated with this card?
What is my liability for the
unauthorized use, theft or
loss of my ATM or debit
Using Your Debit Card Responsibly
Choose a unique Personal Identification Number (PIN). Your financial institution may
assign you a PIN number or give you the option of selecting your own. If you select your
own PIN number, do not use a number that can be easily guessed by someone who may
steal your card. Don’t use obvious number sets, like your birth date or address. Never
share your PIN number with anyone or write your PIN number on the card itself.
Keep tabs on your account balance. Always know how much money you have available.
Do not rely on the balance that your receive at the ATM machine. That balance may not
reflect checks that have not yet cleared and could give you a false idea of how much
money you really have available. Write down all your transactions in a register and keep
your balance current by subtracting every check and debit transaction and adding every
deposit. Forgetting about a transaction could land you in an over-draft situation!
Keep all receipts from your debit card transactions. Do not keep the receipts where
someone else can easily find out your card number. All a thief needs to be able to make a
mail-order or telephone purchase is your name and debit card number. Keeping your
receipts in one place will make it easier to check your transactions against your monthly
Use an account register to record all of your transactions and any other charges or fees
associated with the transaction, such as fees assessed for using an ATM machine from
another institution. Your checking or savings account register will work just fine. When
you get cash from an ATM machine, write down ATM, the date and the amount in your
account register. When you buy something with your debit card, write down POS (for
Point Of Sale) in your register. Check your monthly account statement to make sure all
transactions and fees have been noted in your account register. Contact your financial
institution by telephone and letter if you find there are mistakes or discrepancies.
Notify your financial institution immediately if you think your card is being used
fraudulently. Remember that your card does not have to be missing to be misused by
someone else (see next item).
Notify your financial institution immediately if your card is lost or stolen.
Lost or stolen ATM or debit cards. Always report the missing card immediately or as soon as
you discover it is missing. Call your financial institution and send a letter, too. Keep your
account number, card expiration date, and the telephone number of your financial institution in a
handy, but safe, place in case you lose your card or it is stolen.
When you report a missing ATM or debit card:
What you are held responsible for:
BEFORE it is used
no responsibility for unauthorized use
Within two (2) business days after learning of the
not more than $50 in unauthorized
loss or theft
After two (2) business days but within 60 days from
up to $500
when the institution sends a statement showing an
After 60 days
all the money that was taken from your
account after the end of the 60 days and
before you report your card money
Never give out your ATM or debit card number over the telephone when asked by a
telemarketer who may offer a prize and ask to “verify your eligibility” by requesting your
Watch where your receipts and carbons go. All a thief needs is your number. The
Attorney General’s Office of Consumer Protection says that counterfeiting is safer than
using stolen cards. If you do not report the card stolen, the number won’t show up on hot
sheets. The thief can make up supporting identification to go along with a stolen number.
Financial Services Education Coalition. (2000) Helping People in Your Community Understand
Basic Financial Services. Available online at www.natlconsumersleage.org/debitbro.htm
National Consumers League. (no date). Debit Cards - Beyond Cash and Checks.
Sorkin, David. (2000). What’s Wrong With ATM Surcharges? [David Sorkin is a law professor
at The John Marshall Law School, Chicago, IL]. Available online at
State of Texas. Office of the Attorney General. (2000). ATM, Debit and Credit Cards.
Available online at www.oag.state.tx.us/consumer/brochure/credit.html .
Prepared by Nancy L. Granovsky, CFP, CFCS, Professor and Extension Family Economics
Specialist, Texas Agricultural Extension Service, The Texas A&M University System, December