What is a debit card hold?
When you use a debit card, the merchant (or store) usually contacts the financial institution that issued your card to get an authorization. When the approval is given, the balance in your checking account is reduced or "blocked" by the amount of the purchase. This is known as a pre-authorization hold. The merchant determines the amount of the hold. Your financial institution establishes the length of time the hold remains in place. Typically the hold stays on your account until the funds are transferred to the merchant from your financial institution, often 3-4 days. If you look at your account online, it may display as a pending transaction. Since transactions done with your PIN (personal identification number) are processed on the same day, they do not require a hold.
How can a debit card hold create problems?
In a few situations, the dollar amount of the transaction is unknown when an approval is given. This may happen when you check into a hotel room, rent a car, pay for gas at the pump or use your debit card to pay for your meal at a restaurant. In each of these transactions, the merchant may get an approval for a higher (estimated) amount - allowing for a tip, room service, additional or higher purchase amounts.
As an example, let's say you have $60 in your account when you use your debit card to pay for gas at the pump. Since the purchase amount is unknown when you insert your card, the merchant requests an authorization of $50. The authorization causes a hold to be placed on your account for $50 and your available balance is reduced to $10. If you only purchased $20 in gas, you may believe you have $40 available in your account. Unless you understand how a hold affects your account, your debit card could be declined in future transactions. It could also be costly. If checks or other transactions are processed before the hold is released, you may overdraw your account and incur overdraft fees.
How can you avoid potential problems?
When you use your debit card in a situation where the merchant may estimate the charge (hotels, car rental, paying for gas at the pump, restaurants), the following tips may help to avoid some frustration:
- When a business asks for your card in advance of service, ask if the company will request a pre-authorization hold, the amount of the hold and how the amount is determined. Be sure the hold won't exceed your account balance.
- Pay the charges with the same card you used at the beginning of the transaction. Ask the clerk when the hold will be removed.
- Prior to making a purchase that will involve a payment with a different card, by cash or by check, inform the clerk of the different form of payment and inquire about their policy on reversing holds.
- Ask your financial institution if they offer an overdraft line of credit or another product that will cover overdrafts. Learn how it would work and how much it costs. Look for a plan that automatically covers the overdraft and does not involve a separate decision by the financial institution as to whether or not to pay the overdraft each time. There may be a fees or interest charged o this plan. However, the cost is usually less than an overdraft charge and the item would be paid. Click here for options from Athens Federal.
- Use your PIN when paying for gas at the pump or pay inside.
Tips for Debit Card Safety
- Immediately sign the back of the card when you receive it.
- Treat your card like cash and keep it in a safe place.
- Thoroughly review and balance account statements.
- Memorize your PIN and never write it down.
- When choosing a PIN, avoid obvious choices such as your date of birth or telephone number.
- Do not tell anyone your PIN.
- When entering a PIN, position yourself to shield the keypad so that others cannot observe your number.
- When you no longer need receipts or statements, don't simply discard them - shred them instead.
- Do not use your debit card to make online purchases from an unsecured internet connection or public WiFi hot spot.