Besides your checkbook and credit cards, you’re also carrying a debit card, aren’t you? Two-thirds of American households already have one and chances are that they received their debit cards from their banks without even asking for it.

The fact is that debit cards are growing more than three times as fast as credit cards. In the race to create a paperless banking system, nearly 9.5 million families now use debit cards instead of checks at supermarkets alone. That’s resulted in 250 million fewer checks a year being written just to buy groceries.

It’s estimated that 60 million debit cards are now in use; the transaction volume will soar to $32 billion by 2006, up from only $6 billion five years ago.

Unlike credit cards, where you buy now and pay later, a debit-card transaction takes the money out of your account immediately—but you enjoy an extra day or two of “float” before the transaction is actually recorded against your balance.

The pluses are enormous: A debit card frees you from carrying cash or a checkbook. You don’t have to give your home or work phone number or other personal information to Tillie, the saleswoman at the department store when you pay by check. She simply swipes the card through the same keypad machine she uses for credit cards, you sign a receipt and you’re on your way.

Anyone can get a debit card, unless, of course, he has been rejected for a checking account by his bank. The cards, which have been referred to as “an ATM card with a clout,” are issued through a financial institution either by Visa Check Card or MasterCard’s MasterMoney card. You can use them just like a credit card, provided you have enough funds on deposit or enjoy overdraft protection, which is a good idea.

Unlike an ATM card, you don’t have to punch in a PIN number when you pay your tab at DeCesare’s Restaurant or at Marv’s Discount Warehouse. But you can also use your debit card with its special PIN code at an ATM machine to withdraw cash.

Debit cards are accepted by all merchants who take Visa and MasterCard credit cards. The only hang-up is that, although you can use the card to pay a car rental bill, you’ll need a credit card to actually drive the auto off the lot. Many hotels, while allowing you to pay by debit card, won’t let you use it to make a reservation.

It’s an excellent way to live within your means and avoid disgusting 18 percent to 24 percent credit card interest rates. But there are downsides to debit cards, as well: There’s less protection if your card is stolen. A thief who grabs your debit card or PIN number could drain your account overnight, which is why some banks set daily limits on total dollar transactions for your safety. Keeping all your receipts is a must because they reveal your debit card number and that’s all the thief needs. 

You should record each transaction in your checkbook, lest you wind up bouncing checks. Why do banks want to give every Tom, Dick and Harry a debit card? Simple. They make more money this way and face lower risks than when processing paper checks. Moreover, they make more profit with “off-line” transactions where you don’t use your PIN, such as at a gas station or a department store than with “on-line” transactions. That’s because they get a percentage or a discount fee from merchants who accept their off-line cards.

Final tip: Your liability is greater than with a credit card. The law limits consumer liability for credit-card fraud to $50. For debit-card fraud, your liability is $50 if you notify the bank within two days of learning of the fraud, and $500 or more after two days, up to the entire amount stolen under certain circumstances.

The trend, though, has been for governments and card issuers to go easier on liability for debit cardholders.