You may find that debit cards are not only changing the way you pay for things, but how you receive benefits as well.
Since debit cards make it easier to pay bills and make purchases than cash or check and are safer than carrying bills in your wallet, many organizations are coming up with new, innovative ways to use electronic payment systems for their own programs. If you receive federal assistance in some way, for example, it's more and more likely you'll be using a debit card to spend your benefits.
HOPPING ON THE DIRECT EXPRESS
For the majority of Americans over 65, Social Security is the primary source of retirement income. The traditional way to collect benefits is by direct deposit into a bank account or by check through the mail. But, in 2008, the Treasury introduced a prepaid card system to help the approximately four million Americans receiving benefits who don't have bank accounts, and are therefore vulnerable to problems including late, lost, and stolen checks.
With the new system, the Treasury electronically deposits your benefits each month in a special bank account linked to a debit card. This card, called the Direct Express® Debit MasterCard, is very similar to a commercial debit card since it allows you to pay bills and make purchases anywhere debit MasterCard is accepted — either in person or online — and get cash at banks or credit unions, ATMs, or in retail stores. Just as with a commercial card, you need a 4-digit personal identification number (PIN) to authorize purchases and take out money.
If you lose your Direct Express card or it's stolen, there are rules in place to protect you. If you report the missing card to Comerica - the bank the Treasury chose to issue the cards - within two days of realizing you don't have it, the most you could be liable for is $50. But, you could lose up to $500 if you wait between three and 90 days. That's 30 days longer than you're given with a commercial debit card. Wait more than 90 days, though, and you could lose everything in the linked account.
In addition to these protections, the money in your account is FDIC insured up to the federal maximum, which is currently $250,000.
A WORD ABOUT AT FEES
Direct Express-holders catch some breaks when it comes to fees, but there's also reason for caution. Unlike commercial debit cards, you won't incur an overdraft penalty if you try to use your card to pay for something that costs more than the amount in your account. Instead, you'll be able to cover what's left on your card, but you'll need to pay the balance using another payment method. There are also no monthly or sign-up charges, and you don't need to maintain a minimum balance in the account.
Here's why you should be careful: You may withdraw cash at an ATM for free only once per month. After that, you'll be charged a 90-cent service charge if you use an in-network bank, but you may owe up to $4 if you use a bank that's out of network. In addition, there are fees associated with international purchases, direct bill pay, and replacing a lost or stolen card, among others, so it's important to read all the fine print before you start spending.
FOOD ASSISTANCE
While you can use the Direct Express debit card to pay for an almost limitless variety of goods and services, the federal food assistance debit card has a single-purpose.
SNAP, the Supplemental Nutrition Assistance Program, formerly known as the Food Stamp Program, is a federal program that provides eligible families with money for food. Today, about 40 million Americans benefit from the program each month.
Before 2004, you needed to visit a local state office every month to receive the paper stamps, or coupons, that could be used at participating retailers to purchase food. Now, every month, a set value — the average is $290 per household per month — is automatically allocated to your account, which is linked to a card, known as an electronic benefit transfer card, or EBT card.
USING AN EBT CARD
Just as the paper coupons could be used in place of dollar bills, an EBT card mimics the way you may use a commercial debit card.
You can swipe an EBT card at the counter just as you would a debit card. To authorize the transaction, you must enter your 4-digit PIN. The exact total is debited from your account balance — you can't receive change in return.
Unlike a commercial debit card, which can be used to pay for just about anything, an EBT card can be used only to pay for certain approved foods. The idea is to better ensure that families can buy at least some of the food they need to stay healthy.
To apply for an EBT card, you must fill out an application and submit it at a local SNAP office, though certain states allow you to apply online. You can start using benefits the same day you file your application.
If you lose your card and report it to your state SNAP office, it will be replaced within three to five days.
SMART CARDS
You don't need to be part of a government program to use a special debit card. In fact, if there were ever a reason to doubt the future dominance of cash as a payment method, smart cards, another type of card, may be it.
You pre-load these cards with a set value, or specific amount of money, and then use them as you would a debit card. When the value is depleted, most of the cards can be refilled easily.
For instance, if you're a college student, you might use your school-issued smart card to pay for meals, books, laundry, snacks out of a vending machine, concert tickets, and athletic events.
Some smart cards can even be loaded with more than one currency, so you'll have no problem spending when you travel abroad.
What's more, smart cards can serve as identification badges by including your picture and other important information on the front of the card.
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