The Latest Target of Thieves

When Brad Lipman took his family out for dinner in July 2006, he had no idea it would end up costing him $1,800. Lipman paid for the $60 meal with his debit card. After the waiter took the card, someone swiped it through a portable "skimmer." This handheld electronic device allowed the thief to copy Lipman's account information and security codes, and clone his card.

Over the following week, the culprit drained Lipman's checking account and tapped into his overdraft line. He didn't realize anything was amiss until his credit union called him about some unusual charges. "It's hard to explain the feelings of violation," says Lipman, 40, owner of a lending company in Thousand Oaks, California. "Someone had their hand directly in my money."

Many people wrongly assume that debit cards offer the same protection against fraud as credit cards. But when a debit card is stolen or copied, there's no grace period while you contest the charges. Your cash has already been electronically zapped from your checking account. And if it falls short, as Lipman's did, you could face expensive overdraft charges that your bank isn't required to repay.

Debit cards have overtaken credit cards as Americans' plastic of choice for in-store transactions—33 percent debit, compared with 19 percent credit. Financial experts often recommend them as a money-management tool. Three years from now, debit card use will account for more than half our retail purchases, according to the Nilson Report, a payment-systems industry publication.

Debit cards have become the latest target of thieves, and it's not just random cases like Lipman's. In early 2007, hundreds of customers of a national chain restaurant in Sioux City, Iowa, learned their debit card numbers had been stolen. Thieves made cloned cards and are using them in stores in California and northern Mexico. And in 2006, the TJX Companies, which owns T.J. Maxx and Marshalls, reported one of the largest customer-data breaches ever: 45.7 million debit and credit card numbers were stolen from the retailer's computer systems over an 18-month period. Authorities still don't fully know the scope.

There's little you can do to predict a mass retail theft. But you can be smarter about how you use your card to avoid these and other common pitfalls. In addition to scams, hidden overdraft fees are at an all-time high, not to mention surprise holds and mismanagement traps that could land your account in the red faster than the ATM can spit out your receipt.

Know When to Hold 'Em

When Ann Agent of Portland, Oregon, was planning to attend a children's book publishing conference in Tulsa, Oklahoma, she booked her hotel room over the phone by debit card. She and three colleagues intended to split the bill and each pay the hotel directly at checkout time.

Two days into the conference, Agent's husband called from home to read her a letter from her bank: Her checking account was overdrawn, and she was being charged $35 a day in overdraft fees. "I thought there had to be a mistake," Agent, 45, says. "I keep close track of my account balance."

Turns out when Agent reserved the room, the hotel "blocked," or held, enough money in Agent's account to cover the entire four nights' stay, plus miscellaneous charges, amounting to $580. This blocked every available penny she had and caused her to overdraw. The charges weren't reversed until Agent returned home the following Monday.

Holds are common practice in the travel and hospitality industry. They're the merchant's way of ensuring you'll pay your bill. If you rent a car, the agency could block several thousand dollars to make sure you return the vehicle. Some restaurants will place debit card holds for large parties, and a friendly bartender can put a hold on your card if you start a tab. The hold is usually removed within five business days, sometimes much sooner.

Gas stations are notorious for holds. On a Friday morning in January 2005, Jessica Hathaway of Allentown, Pennsylvania, bought $22.29 of gas by debit. On Saturday, the 34-year-old single mother of three checked her bank balance and learned she was almost broke. Right before the gas station debited Hathaway's account for the gas, it imposed a $75 block.

"I was living paycheck to paycheck. I didn't have much extra in my account, and this $75 charge worried me all weekend," she says. Hathaway was out of luck—and cash—until the following Tuesday, when her bank released the hold.

The kind of hold Hathaway described is a standard preauthorization for signature (non-PIN) transactions. Stations vary widely in their hold amounts. Because Hathaway bought gas before the weekend, her hold may have taken longer than usual to clear.

Avoid the Trap

Leave your debit card at home when traveling. "People should use a credit card, even if they don't any other time," advises Clark Howard, consumer advocate and radio host of The Clark Howard Show. Never use a debit card any place your card is taken out of sight, like a restaurant. Book dinner reservations on a credit card. If you must use debit at a gas station—a hot spot for skimming—use your PIN inside or at the pump. Your card is safest if it stays in your hand, and typing in a PIN eliminates the hold.

16 ways to save $100

As the government and Federal Reserve campaign to head off a recession, many families are working hard to save money and reduce debt. Credit-card debts and other loans hang over us like a sword. By saving modest amounts, however, you can reap big rewards over time. And that doesn't require clipping coupons and washing out used coffee filters. Here are easy ways you can save $100 or more this year:

1. Plug into bargain electricity.
Mickey Greenblatt was spending nearly $250 a month on electricity for his home in Potomac, Md. When the retired executive called his utility company to find out why his bills were so high, the company offered to do a free home-energy audit. Greenblatt learned that simple things such as running his dishwasher at night rather than during the day could cut his bill by 40 percent. Taking advantage of such options as off-peak rates can save most consumers $100 a year.

Savings are also possible under "load management" programs. You get discounts for allowing your utility company to put a device on your water heater and air conditioner that switches them off briefly during periods of high demand.

2. Hit the brakes on automobile-insurance rates.
You can save substantially by increasing the deductibles on the comprehensive and collision portions of your policy. According to the Insurance Information Institute, raising collision deductibles from $200 to $500 could reduce your collision and comprehensive coverage by 15-30 percent. Squeeze out additional savings by asking about every possible discount, such as for carpooling, air bags, annual mileage below 10,000 miles -- even for teenage drivers with grade averages above a B.

3. Challenge your property tax.
Ruth Rejnis, author of Squeeze Your Home for Cash, recommends going to your local assessor's office and finding out what property taxes your neighbors are paying. If your house is similar but your taxes are higher, you may want to challenge your bill. Also, read the description of your home. Errors in square footage or the number of bathrooms could mean an overcharge. The assessor's office or local board of tax review can tell you how to file an appeal.

4. Shop for a bargain bank.
Look for free checking and no ATM fees. Also, if you have direct deposit of your paycheck, your bank might waive its monthly fee.

5. Remedy pricey prescriptions.
Cut your bills in half by buying generic drugs instead of name brands. Also, buy your prescriptions via mail order through a drugstore chain or your company health plan.

6. Pay off your plastic.
If you carry a credit-card balance from month to month, pay it back pronto. A $1000 balance at 18 percent blows nearly $200 a year in interest. If you can't pay it off in full, transfer your debt to a lower-rate card.

7. Say no to car extras.
Your car dealer may sell rustproofing and fabric protection at $100 a pop, and paint protection for as much as $250. "Usually these extras are the dealer's way to squeeze more money out of you," says Bob Elliston, author of What Car Dealers Won't Tell You. Do-it-yourself fabric protector costs about $10 a bottle. Paint protection is unnecessary, since most cars have many layers of paint. And skip rustproofing: cars come already treated so that they won't need it.

8. Take a longer waiting period for disability insurance.
If you can't work, disability insurance pays your living expenses. Many employers offer this. But if you must buy your own, accept the longest waiting period before benefits kick in -- as long as you can cover those expenses, suggests Shelly Branch, author of Dollar Pinching: A Consumer's Guide to Smart Spending. A healthy male carpenter earning $40,000 annually could pay up to $1800 a year for a policy with a 30-day wait. With a 90-day wait it could cost $800 to $1100.

9. Cancel mortgage insurance.
When you buy a house with less than 20 percent down, your lender may insist you buy private mortgage insurance (PMI) to protect against default. The average cost of this insurance is $45 a month, or $540 a year. However, once you have 20-percent equity (either because you've paid down your mortgage or because area property values have risen), you may be allowed to cancel the PMI.

10. Explore DRIPs.
If you buy stock, you can save on brokerage commissions by enrolling in a dividend reinvestment plan (DRIP). Offered by more than 900 companies, DRIPs allow shareholders to buy stock directly. You may have to be a shareholder of record, however, so find out if you'll need to use a broker to buy your first few shares. Then enroll in the DRIP.

11. Buy straight from the Treasury.
Another way to bypass brokers and save money on fees is to buy Treasury notes, bills or bonds directly. The minimum investment is $1000 for bonds and for notes with maturities between five and ten years, $5000 for notes with shorter maturities and $10,000 for bills. Ask the nearest branch of the Federal Reserve Bank for an application for a Treasury Direct account.

12. Clean out your closet.
When you deduct charitable donations of clothing at tax time, do you just guess $100? William Lewis, author of Cash for Your Used Clothing, says most people underestimate the worth of such items.

Before you donate, price each item against similar ones sold at the store where you drop them off. If you're in a 28-percent tax bracket, a donation worth $400 will earn you a tax deduction of at least $112.

13. Skip the service contract.
Extended warranties on electronics are rarely a good deal. According to Tom Garman, a Virginia Tech professor of consumer affairs, most product breakdowns occur in the first year and are covered by the manufacturer's warranty.
14. Flex your company's flexible spending account.
These accounts allow you to set aside part of your pretax salary for dependent-care costs and unreimbursed medical expenses. You decide at the beginning of the year how much money you want to set aside in the account. The downside is that if you don't use all the money, you lose it. However, if you're in the 28-percent tax bracket and allocate $500 to cover your health-insurance deductible, you'll cut taxes by $140.

15. Buy in bulk.
Items you may use a lot, such as paper towels and diapers, are often far cheaper when you buy in quantity. For example, Alan and Denise Fields, co-authors of Baby Bargains, say new parents buy an average of 2400 disposable diapers in their baby's first year alone. Diapers that cost 20 cents apiece in the packages sold at grocery shops and drugstores might go for 15 cents when bought in bulk at a discount store or warehouse club. Just a nickel a diaper could add up to an annual savings of $120.

16. Rethink your vacations.
"Homestay" programs offer free lodging all over the world to travelers who are themselves willing to host other members in their homes. Some groups charge an annual membership fee, but your savings can easily be worth more than a hundred dollars a day.