Protect yourself if you use a debit card

Debit card account fraud is on the rise, according to the latest numbers from The Cleveland Plain Dealer. I want to tell you the best way I know to protect yourself.

Years ago, the bulk of financial fraud involved credit cards alone. But now some 40% of the fraud involves debit cards, while the remaining 60% is with credit cards.

If your credit card is compromised, the harm to you is relatively small. You contact the issuer to report false charges and you may have to do some paperwork, but no money leaves your hands.

With debit card fraud, however, there is money that leaves your hands. And you have to fight to get your own money back. Unfortunately, it's now taking longer and longer to get that money back.

Under the law, banks have 10 business days to give you your money back in the event of debit card fraud. Visa and MasterCard, however, have set their own standard of 5 business days if a compromised debit card has either logo on it, as most do. Yet I'm hearing from callers that the true wait time to get your money back is substantially longer than either 5 or 10 business days.

Now, I know debit cards are popular because people got in over their heads spending money they didn't have on credit cards. Debit cards, in theory, allow you to spend only what you have.

But the problem comes if a crook cracks your debit card. Then you have no money to pay your mortgage, your car loan or to buy gas or food, among other things. Your checks start bouncing and, depending on your bank or credit union, the institution may not cover the bounced check charges that result from debit card fraud.

You now have a 1 in 65 chance of having your debit card compromised. That's not horrible, but it is a real problem. So what can you do?

If you are someone who would be financially devastated if your bank account were emptied, I suggest you open a second account and tie your debit card to it. Then fund the second account only with money that's used for debit card activity, so your principal account won't be at risk in the event of a breach.

That's the best way I know to protect yourself.

Editor's note: This segment originally aired July 2011.