For quick and easy access to the funds in your account, nothing is as convenient as a debit card.
Branded with a Visa or MasterCard logo, you can use a debit card at any merchant that accepts a credit card, and doing so is much quicker than paying by cheque.
Debit card may involve the use of ‘holds’ to tie up funds in one’s account.
It is important to have basic understanding of how this works so that your debit card use does not end up costing you money.
Here are some tips on how debit card hold operates:
Basics of the hold: A debit card authorisation hold (which is sometimes called a pre-authorisation) is a banking practice of holding a particular amount until the merchant makes a final settlement of the charge. Contrary to what you may assume, a store does not actually receive its payment for a debit card purchase right away. It usually waits until the end of the day to submit all the transactions to the banks in batches. It can sometimes take a day or two before a transaction is reflected in your account, and perhaps up to three or four days before the merchant receives the final payment. The process is similar in the context of credit card purchases, but the holds are only made against your credit limit – no funds are actually held.
Potential for rejected charges: Unfortunately, when a hold is pending because you have used your debit card, the available balance in your account will not reflect the hold amount. If you normally do not have a lot of extra money in your account, there is a possibility trying to make additional purchases thinking that you have enough money in the account. This can lead to rejected charges if the holds have tied up too much of your funds.
Potential for bounced cheques and fees. If someone you have written a cheque to tries to cash it while there are a number of holds active in your account, there may be insufficient available funds in your account and the cheque will bounce.
This will certainly incur fees from your bank, and potentially other charges that may be imposed by the party you wrote the cheque to. Even if you have overdraft protection on your account, you will be responsible for the fees associated with that service.
Additional holds: The issues described above can be compounded by holds that are often imposed by certain types of vendors. Filling stations, for example, commonly place some amount for any debit card use that is made directly at the pump, regardless of the amount of fuel that is purchased.
By understanding how often these holds go onto your account, you can protect yourself against certain types of problems that may arise from using your debit card.