After the massive security breaches at Target and Nieman Marcus recently, we could all stand to be more aware of the security features on our credit cards and debit cards and how banks protect our money. Some banks offer more security features than others. Let's take a look.
Your Liability for Unauthorized Charges
First, let's talk about what happens in the case your card is hit with a fraudulent charge (something that's happened in the last five years to 42 percent of Americans, according to one survey). By law, everyone who uses credit cards and debit cards have some protections against fraudulent transactions. Though credit cards are generally safer than debit cards, MasterCard and Visa debit card holders are protected from fraud with a few exceptions.
Credit cards: You're not responsible for any charges you didn't make if a thief uses your card over the phone or online. If your card is used physically to make a purchase, however, legal website Nolo points out that you may be liable for up to $50 of the purchase (though most card issuers waive that $50 liability).
ATM and debit cards: According to the regulations, with these cards, your liability depends on how quick you are to report unauthorized charges. If you report the card lost or stolen before any use of the card, you're not responsible for any charges. If you notify the bank about an unauthorized charge within two business days of receiving your statement, you're only liable for up to $50. If you don't notify the bank within those two days, though, you could lose up to $500— and if for some reason you don't notify the bank within 60 days, you risk losing an unlimited amount of money.
However, most debit cards in the US are either MasterCard or Visa, and these offer a "zero liability" policy—under a couple of conditions:
MasterCard: If you have a debit or credit card with the MasterCard logo, you're not responsible for any unauthorized transactions, as long as your account is in good standing, you have exercised "reasonable care" (whatever that means) in safeguarding your card from loss or theft, and you haven't reported two or more unauthorized transactions in the last 12 months. Also, zero liability doesn't apply to business cards, prepaid cards, or if a PIN was used for the transaction—so you should probably pick a more secure PIN and follow other debit card security basics.
Visa: Visa's Zero Liability program, applicable in the US only, removes the $50 liability and the 48-hour reporting requirement for both debit and credit cards. Like MasterCard, the protection doesn't apply to business cards or PIN-based transactions not processed by Visa, as well as ATM transactions.
Creditcards.com reports that the 25 largest banks and credit unions offer zero liability for both credit and debit cards and next day replacement of debit cards. Even with that assurance, however, you might want to look at this report from the Consumer Financial Protection Bureau about the credit card issuers with the most complaints (including issues with fraud, credit card protection, and billing disputes).
Beyond Liability: Smart Security Features
Some banks go beyond the basics to offer more protections for your hard-earned money. Here are a few features you should consider beyond the typical options.
Note: This obviously isn't an all-inclusive list. If you're with a smaller bank or credit union, it's possible your account could have these security features. Check your bank's security page to find out.
Two-Factor Authentication
You know how important two-factor authentication is for protecting your online accounts. It's especially important when we're talking about access to your finances. Several banks already offer this, but not all do, unfortunately. Here are a few that do have this extra layer of security when you login: Ally, Bank of America, Citibank, Chase, Discover, Capital One (formerly ING Direct), E*Trade, HSBC (which is offering a free physical device to generate the security codes), and Charles Schwab.
Don't bank anywhere that doesn't have this minimal protection. Also, know that while some of these banks require two-factor authentication be turned on, for others it might be optional.
Guarantee Against Unauthorized Access
After I found out my banks readily gave my password to me over the phone with little verification, I looked for banks that guarantee your money in case your online account is hacked: Charles Schwab, SunTrust, First Tennessee Bank, HSBC, and Ally Bank.
Next-Day Cash Reimbursement
While debit card users wait an average of two to three months before they get their money back, some banks are quick to reimburse customers' money while the dispute is being settled. This means you're not missing the stolen money in you account for however long the dispute takes. Two big banks that guarantee this are Bank of America and Chase.
In addition, in case your card is lost or stolen while traveling, both Discover and Citibank will send you emergency money so you can get by.
Debit Card Blocking
This feature is like hitting the pause button on your debit card. In case your card is ever lost or stolen—or even if you just want to temporarily hault your spending on it— you can sign into the mobile app or website to deactivate the debit card or reactivate it. You'll find this feature at Simple and Capital One.
Single Use Card Numbers
These one-time virtual account numbers protect you when you're shopping online, because your actual card number isn't shared with the site. This comes in handy especially when signing up for free trials, in addition to the general online shopping protection. Citibank and Bank of America offer these single use card numbers, and MasterCard has its own program as well.
Photo Credit Cards
In the event your credit card gets into the wrong hands, you can lessen the chances of the thief using your card if you have a photo of your face on it. Bank of America, Citibank, Capital One, and Wells Fargo all offer custom photo credit cards.
SmartCards
"SmartCards," also known as chip-and-pin or chip-and-signature cards, are widely used around the world—except in the US. These cards are much more secure than the magnetic swipe cards used in the US, because they're tougher to clone and also encrypts the account info and makes it different with each transaction. Retailers in the US still have to install point-of-sale terminals to accommodate these cards—which could take years—but several banks do offer these SmartCards already (handy if you travel outside the US):
American Express: by request
Bank of America: Merrill Lynch-issued cards
Capital One: Canada only
Chase: many travel credit cards
Citibank: travel cards
USAA: by request
US Bank: by request
Wells Fargo: Visa cards, by phone request
Credit Card Forum has a breakdown of the best of these kinds of cards.
Other Essentials
Finally, the majority of banks already offer these features, but they're worth mentioning: Text, email, and mobile alerts so you'll know when suspicious activity happens, SSL secured website, automatic session timeouts, paperless statements to prevent identity theft via snail mail, and fraud monitoring.
Photos by All Vectors (Shutterstock), Nemo, LendingMemo.com, Pixabay.