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I wrote this page after researching what type of payments offered me the best protection from fraud and/or theft. This applies to purchases in person and online, as well as bill payments. Cash isn't really a consideration in a lot of cases, but when it is, it's certainly a good protection from fraud. However if cash is stolen, your chances of recovering anything are approximately none. With the other three you can almost certainly get something back, the question is how easily, how soon, and how much.

I was raised not to spend money I didn't have. At the same time I don't like carrying a bunch of cash because if you lose it or it's stolen, it's gone. So for many years I wrote checks. I also liked writing a check because I just have to record it in my check register to keep track of it, and it's easy to reconcile my statement because it shows up with a check number. I've written over 10,500 checks out of my current account over the years.

Then several years ago a lot of small businesses stopped taking checks due to fraud. So I started using my debit card because it was like a check in that the money came out of my account PDQ and I still couldn't spend money that I didn't have. Now relatively few places take checks anymore, and many that do run it through as a debit card and hand the voided check back to you. My primary irritations with that are that I have to save the receipts to enter into my register, and when I get my bank statement, there's no check number for the transaction. So if I've made a bunch of purchases at Bob's Hardware that were handled like that I have to reconcile by date and amount, just like I do with a debit transaction. But in my opinion at the time, debit was still better than credit.

The Banks insisted that the fraud protection was the same for debit and credit cards, so that I was no more at risk of loss with a debit card than a credit card, even though only the credit card protection is mandated by law. As far as I can tell banks are honoring that. If my debit card is stolen, I have the same risk that I do with a credit card, usually [in the United States] something in the range of $50 or less depending on the circumstances. But even when that's true, there's one critical difference: With a credit card I don't have to pay for the purchases until the bill comes. With a debit card the money is removed [or at least locked] from my checking account almost immediately in most cases. This isn't normally an issue, unless there's a problem.

I'd heard stories about people having problems, but a few months ago I got a wake up call when a friend had her wallet and checkbook stolen. Within a couple of hours the thief had been to her bank and used the debit/ATM card at a teller station and took most of her money. By going to a teller she avoided the need for the PIN, and for some reason the teller didn't bother to check ID. The bank also helpfully transferred money from Savings to Checking for her, and also gave the thief some of that, apparently as part of the 'overdraft protection' where they take money from savings to cover overdrafts. For a fee of course. Then the thief hit a couple of other banks and made some other withdrawals that resulted in [a day or so later] overdrafts. She also made some sort of telephone transfer to spend some money. My friend realized within a few hours that her stuff had been stolen and called the bank to close the account, but it was too late, she was out of money. She opened a new account with a small balance, and when another charge on the old account came through, the bank very helpfully transferred it over to the new account and cleaned that out too. She changed banks. After completing their investigation, the bank refunded all the fraudulent charges and resulting fees. But the real problem was that for about 5 days she had no money. And things like her car insurance payment which auto-drafts out of her account bounced. If it had been her credit card that was stolen she'd have still had all of her money while it was investigated. The thief never actually cashed a check, but she did use a couple to guarantee a cash withdrawal somewhere. In this case the effects of using a debit card or a check were the same, the money was gone from the account right away.

An even worse example, admittedly extreme, is the case of at least 26 people in Norway in December of 2007 who used their debit cards to pay for parking. The computer that processed the payments mistakenly multiplied the amount of the sticker by 10,000 resulting in bills between $37,000 and $148,000, Needless to say that cleaned out the bank accounts of people who thought they were going Christmas shopping until their cards were declined. Fraud isn't even required, all it takes is a mistake.

While the banks are (at least so far) providing the same protection for debit cards as they do for credit cards, it's purely voluntary on their part because they don't have to. According to the FTC under some circumstances your liability, even for fraudulent charges, on a debit card can go as high as the line of credit established for overdraft protection on the checking account.

If your credit card is stolen, it's not your money that the thief is spending since you have until the end of the billing cycle to pay it off. And you can refuse to pay a fraudulent charge while it's in dispute. But with a debit card the thief is spending your money and when you dispute the charges the money is already gone, you have to wait for the bank to give it back.

Because of that risk, for the most part I quit using my debit card [and checks] and started using my credit card. I just make sure I pay it off each month (or even twice a month) so that I don't pay any interest. By law your maximum liability for credit card fraud is $50, (unless you fail to report it within 60 days of the statement date showing fraudulent charges). If you report the theft before any charges are made, or if only the card number (and not the card itself) are stolen you have no liability. There are a few things you need to do to minimize your liability, so read the rules. There are additional relevant links
at the bottom of the page.

There are several things you can do to minimize your risks and protect your checking account information. The best protection is to not use it. But if you do use checks (or your debit card) be careful about where you use them. Always reconcile your bank statement to verify that all charges are valid. If you can safely check your account online, you can keep a closer eye on it. But if you do use online banking, make sure that you only do it from a computer and connection that you can trust. And please use a good password.

By law in the United States you're entitled to one free credit report from each of the three big Credit Agencies each year. To meet the FTC requirements the agencies have set up a joint site at www.annualcreditreport.com. You can get them all at once to compare them, or get one every 4 months so that they're more frequent. This is the only legitimate free credit report site.

The www.annualcreditreport.com FAQ has lots of additional information about credit reports.

Never, ever give out sensitive information to someone who calls you to ask for it. There are lots of scam artists out there and they have some very smooth lines to get you to give up the information they want. If you didn't initiate the call and aren't certain who you're talking to, don't give out the information.

Mail theft is a major source of information leading to identity theft. Never mail a check from the mailbox in front of your house, take it to a drop box. And then only if that box will be picked up the same day. Also make sure that your incoming mail is as secure as possible, don't let it sit in the box for days, or even overnight. Keep the box itself as secure as you can: lock it if it's an option, have the boxes in a clearly visible area, and watch for suspicious activity around them.

You can register at www.optoutprescreen.com to get off those lists that generate unsolicited Credit card offers. The site is sponsored by the three credit agencies. If you opt-out online it's good for 5 years, if you want to do it permanently you'll have to send them a letter. Instructions are on the site.

If your bank sends you "checks" that can be used to get money from your credit card, ask them to stop. You don't know they're coming, you won't know if someone steals them, and they give someone access to your accounts.

Readers Digest has a good article about the need to protect your Health Insurance card, that has become a target for identity thieves as well. A good health insurance card could actually be worth more money than your credit card.

Use a cross cut shredder on anything that has any personal information on it. A strip cut shredder is not good enough.

Don't carry more personal information than necessary. I never carry my Social Security card.

In addition to all the above, be careful where your information is stored. If someone asks you for sensitive information (like your Social Security Number) and you don't think they need it, don't give it to them. Unfortunately the laws regulating use of your Social Security Number are not clear. There is no law preventing some businesses from requesting it. And they can refuse to provide service if you don't give it to them. I had a doctor refuse to treat a broken finger unless I gave them my Social Security Number.

Check your report regularly at www.annualcreditreport.com. (It's worth repeating.)

If someone steals your identity, they might not do anything obvious like steal from your existing accounts. They may just open new accounts in your name, with a new address. You won't know anything about it until (or unless) you check your credit report and start seeing unexplained activity in your name.

Be careful about Rewards cards. Studies have shown that spending goes up when people think they're getting more rewards for doing it. The bills still have to be paid though. And of course you're giving a lot of information to the card issuer. Ostensible in return for lower prices, but the benefits are really for the store and their partners.

The best way to protect your credit rating is to lock it up. There are two degrees of lock, and the differences are significant.

• Fraud Alerts are free and can be done over the phone. All they do is put a note on your file that you might be a victim of identity theft. And they expire in 30 days unless you send in paperwork. They do not prevent anyone from accessing your data.
• A Security Freeze stops anyone from getting any information about your credit history. It requires that you send in some verifying paperwork and may cost you up to $10 for each of the three bureaus. And you may have to pay again to lift the Freeze if you want to apply for a loan. Then again when you refreeze it afterwards. All of that is still cheaper and easier than sorting out the mess caused by identity theft. If you're not likely to be applying for loans or credit in the next year or two, a freeze makes sense. And if you're paying for a credit monitoring service, a freeze could be cheaper.

Keep in mind that this is a hot issue and laws are changing all the time, so this information may be outdated soon. Laws also vary from State to State, and Federal laws could change everything. The credit bureaus also seem to be becoming more interested in providing these options voluntarily, possibly to avoid being forced to do even more. As of November 2007 each credit bureau is providing State specific information so that you can see the process and the costs. In most States if you've been the victim of identity theft some or all of the freezes could be free.

Security Freeze information from Equifax, Experian and Transunion.

Remember that you have to do it individually with each agency.

Various pages from the FTC:

Your Rights: Credit Reporting including information about and links to the only official and legitimate Free Credit Report site. This is a good place to start. The FTC page includes this warning, which is worth repeating here:

The FTC advises consumers who order their free annual credit reports online to be sure to correctly spell annualcreditreport.com, or link to it from the FTC's web site to avoid being misdirected to other web sites that offer supposedly free reports, but only with the purchase of other products. While consumers may be offered additional products or services while on the authorized web site, they are not required to make a purchase to receive their free annual credit report.

The FTC has a page that is specifically about the Free Credit Reports including more warnings about making sure you're on the right site. You have to give them the information that you're concerned about protecting, you don't want to give it to a look alike site.

Fighting back against identity theft

Choosing and Using Credit Cards

Credit, ATM and Debit Cards: What to do if They're Lost or Stolen

Fair Credit Billing

Electronic Funds Transfer information

Credit Card Loss Protection Offers: They're the Real Steal

Information and articles from other sites:

Free Credit Reports from the only site where it really is free, see the warnings above about making sure that you're on the correct site. You get one free report from each of the major Bureaus each year. Get them from one site every 4 months to spread them out, or get them all at once so you can compare them.

Alert: Dump Your Debit Card! from Privacyrights.org.

Paper or Plastic: What's the Best Way to Pay? also from Privacyrights.org, has more details.

redtape.msnbc.com has an article about the risks of unsolicited credit card applications, and recommends getting off the lists.

Debit or Credit from The Red Tape Chronicles at msnbc.com.

Identity Theft - Who Would Want Mine? from BigMoneyCentral.com.

A Blow to Identity Thieves discusses freezing your credit report.

How to freeze your credit report from The Redtape Chronicles.

The Torn-Up Credit Card Application shows why just tearing up an unsolicited credit card application isn't enough.

Get off the DMA mailing lists.

I'm no financial expert, I barely manage to take care of my own money. If you have any significant amount of money, you should talk to an expert. The value of significant can vary, you'll have to use your own judgment. At a minimum, you don't want to take my advice without additional research, but hopefully I've given you a place to start and something to think about.

Please keep in mind that I am not responsible for any sites linked to from my pages. They may look different to you, or even have effects on your browser or computer that are different than what I see due to filters and differences in browsers. They could have also changed since I looked at them. To the best of my knowledge, they are all safe. But you surf at your own risk.

The only information that I collect is page hit counts. My web host Penguinhost.net keeps track of lots of things and makes the information available to me in pretty graphs and logs. I look at them occasionally, but there is no personally identifiable information there.

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