When a merchant asked you if you want to run your bank card as a debit or a credit, do you know what the difference is?
Here are the main differences in using your bank card as a debit or credit transaction.
Debit: You are asked to put in a personal identification number (pin).
Credit: You are asked to sign for your transaction, creating a signature verification.
Debit: The funds are removed from your bank account right away
Credit: Depending on how the merchant processes credit transactions, usually by a batch system when all credit transactions for the day are processed together, it may take a couple of days for the funds to clear your bank. Don’t always count on that though. Make sure you have the available funds.
Debit: You can request cash back. This is a great service and can eliminate the extra chore of running to the bank to get cash. It is also a great money saver if you are out of town and there are no branches of your bank around. Instead of using your bank card at another bank’s ATM and getting charged a service fee, you can just use it at a local retailer as a debit transaction and get cash back.
Credit: You cannot get cash back
Debit: The fee paid by the merchant is usually less on debit transactions than on credit transactions.
Credit: The fee by the merchant is usually more and the banks get the majority of the fee.
Debit: Some banks charge a fee every time you use your debit card. Personally, if my bank did this, I would switch banks because most banks do not. Those that do are trying to get you to use your card as a credit because they make a lot of money from credit card transactions.
Credit: Your bank will not charge you a fee.
Debit: You have less protection on a stolen card than you do when you run it as a credit. Government regulations require debit card issuers to set a maximum liability of $50 if the debit card is reported lost or stolen within two days of discovery. Liability increases to $500 if the lost or stolen debit card is reported within 60 days. If you fail to notify the bank of the theft within 60 days after a bank statement is sent, you could lose everything in your checking and overdraft accounts.
Credit: You are protected from liability by the same laws which protect credit card users. If someone steals your card and you report it, you will not be liable for their credit transactions.
Debit: You must deal with the bank’s mediation process to handle disputes.
Credit: You can take advantage of the credit card company’s mediation process to handle disputes. This tends to carry more weight and have better results than your bank’s mediation process.
Debit: There is usually a daily limit applied to debit transactions so if you are making a large purchase, your card may be declined, even though you have the funds in the bank.
Credit: There is usually no daily limit.
As you can see, there are pros and cons to running your bank card as a debit or a credit. The choice is up to you on how you chose to make your transactions. The good news is that you don’t have to decide on one way or the other for all your transactions. You can switch it up per transaction, depending on your needs at the time of your purchase.