MISSISSIPPI STATE – Checks and debit cards are handy ways to pay bills without actually carrying money around, but consumers still must be wise using them.

A check used to be a straightforward document authorizing one person to draw a certain amount of money from a consumer's account. The process took a day or more and required a signature and the transfer of actual pieces of paper. Debit cards simplified that process for consumers, and the digital processing of check information simplified it for businesses.

Bobbie Shaffett, family resource management specialist with the Mississippi State University Extension Service, said debit cards work like checks, only quicker and with a card swipe. The word “debit” means subtract, and debit or check cards simply subtract the transaction amount from the consumer's available funds.

“Debit cards are a way to spend money in your checking account without carrying cash or writing checks,” Shaffett said. “Debit cards are issued by a local bank and usually backed by Visa or MasterCard, so they may be accepted wherever these credit cards are accepted.”

Debit cards typically require users to enter a personal identification number, or PIN, or a receipt is generated that the consumer must sign. Depending on the consumer's arrangement with the bank, debit cards may allow a person to spend more money than there is in the account, but the extra cost becomes a loan and is charged interest.

“Debit accounts can make electronic fund transfer deposits for such things as income tax refunds and Social Security payments much faster and safer,” Shaffett said. “They are a convenient way to avoid carrying large sums of cash and are generally accepted out of town when many checks are not. The card user doesn't have to pay charge bills later as the funds are immediately withdrawn from the person's account.”

When making a reservation for services such as a hotel room or a vehicle rental, some companies will block the anticipated payment on the consumer's account until the transaction clears. Since debit cards are not credit cards, this block freezes actual cash in the consumer's account rather than limits what can be spent on a credit card.

Shaffett said the federal Electronic Funds Transfer Act protects fraudulent debit card use and limits a person's liability if fraud is detected. Individuals should protect their PINs, cut up old cards, and record account numbers and bank contact information in case the card is lost or stolen.

It is important to keep good records when using a debit card.

“Keep up with the current balance and reconcile your account monthly,” Shaffett said. “Keep your receipts until you have end-of-the-month proof the transactions cleared the bank, and keep a cushion of money in your account so you don't overspend and incur overdraft expenses.”

Those who use debit cards realize that funds are immediately transferred from their accounts, but many check-writers have been surprised to find checks now clearing on the same day they were written rather than a few days later.

Susan Cosgrove, an Extension family resource management area agent in Newton County, said Congress passed the Check Clearing for the 21st Century Act in 2004. This act, commonly known as Check 21, made it easier for businesses and banks to process checks.

“This act was designed to modernize the way checks were processed, and it did this by turning a paper check into an electronic image,” Cosgrove said. “Financial institutions then speed the check's image and date through the system.”

This process eliminates as much as $2 billion in transportation and processing costs to banks by avoiding checks. For consumers, it means they no longer can get their original cancelled checks back but receive electronic images as substitute checks.

“A bigger issue to consumers is the fast, digital processing of checks, which eliminates the ‘float time' many check-writers counted on,” Cosgrove said. “Many people would take advantage of the time it took a check to clear the bank by writing a check without sufficient funds to cover it, and depositing these funds before the check bounced.”

The provisions of Check 21 make it possible for retail outlets to immediately transfer a person's paper check into a digital check on-site and immediately process the transaction while the customer waits. A second signature is required, and the consumer is handed back the original paper check once the digital check has entered the system.