The credit card versus debit card debate rages on between banks and consumers. Until recently, there were lower fees on the use of debit cards to the card issuer which created the debit card craze. Currently, legislation limits fees on debit cards causing banks to change their marketing tactics so now banks offer substantial rewards programs enticing customers to choose credit rather than debit.Presumably, using a debit card makes it easier for you to stay on abudget: When you run out of money, you stop buying. Despite the benefits of using a debit card, there are some cases a credit card is the wiser choice because of the differences in protections and guarantees.
3 Key Differences between Debit Cards and Credit Cards
1) Purchases. Debit card purchases deduct money directly from your checking account, using existing money;using credit cards is actuallya short term loan that you pay back when you receive the bill.
2) Account fraud and the refund process. Debit purchases have fewer protections when account fraud occurs. Credit card fraud cost the card issuer money because you do not pay the bill on a disputed charge until after the investigation. If the company finds fraud, you have no out of pocket costs.
Debit card fraud takes money directly out of your account, leaving you with less money while the bank investigates your claim, which can take up to 60 days. If the bank finds fraud, they reimburse your account. In the meantime, you must pay the monthly bills as if you have 100% of your charges.
3) Account fraud loss limits and reporting. Debit cards require you to report a lost or stolen card within two business days to limit liability to $50. You must report losses identified in a statement within 60 days of the send date,to limit losses to $500. After that time, you have unlimited losses.
The law requires you to report credit card fraud, a lost card, or unauthorized transactions within 60 days of the statement to avoid liability, which is a maximum of $50. Many credit card companies waive the $50 liability. Debitcard purchases processed through the Visa or MasterCard system also waive the $50 liability. You have no control over which system the merchant processes the charge, creating the potential for greater financial loss when you use a debit card.
8 Occasions You Should Choose Credit Rather Than Debit
1) Filling up. Authorizations at “Pay at the Pump” stations treat debit and credit accounts differently. With credit purchases, the stationauthorizes a $1 charge to ensure an active account. At the completion of the transaction, they process the total amount, which posts to your account within a few business days. Debit transactions can hold up to $100 to cover the actual charge. Once the purchase amount posts to the account, the company releases any excess charges. A debit purchase uses actual account balances,meaning a purchase amount higher than available funds could leave the merchant without payment. To protect against non-payment, they place a large hold, which can tie up your money for several days.
2) Online transactions and payments. The new chip card protects consumer accounts against fraud by encrypting transactions with single use codes. Unfortunately, the technology only works when you are present for the purchase, eliminating the benefit on internet purchases. Online transactions are one of the fastest growing segments of fraud, creating more risk for online purchases. To protect your bank account, use a credit card, which grants you 60 days to dispute a charge. If the merchandise does not arrive, is faulty, or another issue arises, you can get your money back quickly by reversing the charge.
3) Car rentals. Some rental agencies do not allow the use of a debit card. Others require a large deposit, a review of your credit file, or other security measures to ensure the vehicles return. Using a credit card may save money on the rental by offering an insurance benefit, as well as eliminating the additional security measures required when using a debit card.
4) Automatic payments. Whether it is a gym membership, streaming, service, or electric bill, companies promote and offer discounts for autopay. However, when you cancel a service, or the contract ends, it can be difficult to stop payments. It is easier to dispute a charge and change account numbers with a credit card.
5) Subscriptions. Free trial offers are a common strategy to encourage enrollment in monthly programs. Whether you forget to cancel or later change your mind, you have more protections with credit card autopayments, for the same reasons listed above.
6) Large purchases and warranty products. Some credit cards offer extended warranties as a card benefit, giving you protection against a faulty product. In the event of a botched delivery or another issueprior to installation, you have 60 days to dispute and reverse the purchase.
7) Advance travel purchases. Credit cards offer better protections and warranties when paying for services in advance of receiving them. Travel is a prime example of required prepayments. Cruises, airline tickets, and other travel costs often require advance purchases, making the additional dispute time valuable.
8) Restaurant purchases. Anytime a card leaves your presence there is a higher potential for fraud. With high staff turnoverand the ease of taking a photo of your card information, restaurants are prime locations for fraud. It might include stealing information and using it for online purchases or padding the tip line. Put $0.00 in the tip line if you leave cash for the tip and use credit for the base purchase when a staff member takes your card to a register to complete the transaction.
Knowing when to choose debit or credit, can save you money and prevent fraud on your account. While the list is not exhaustive, these common occurrences favor credit cards over debit due to the higher level of protection offered by credit cards.