They may look just like credit cards, but debit cards have different protections and uses. Sometimes they’re not the best choice.
Reaching for your wallet is like a multiple-choice test: How do you really want to pay? While credit cards and debit cards may look almost identical, not all plastic is the same.
It’s importantconsumers understand the difference between a debit card and a credit card. There’s a difference in how the transactions are processed and the protections offered to consumers when they use them. With debit cards and credit cards, each payment method has advantages, and each is also better suited to certain situations. Here are 10 places and situations in which it can pay to leave that debit card in your wallet.
1. Shopping online
Don’t use your debit card when shopping online. A debit card links directly to a checking account, “you have potential vulnerability” if you have problems with a purchase or the card number gets hijacked.For the same reason, avoid using your debit card for phone orders.
The Federal Reserve’s Regulation E (commonly dubbed Reg E), covers debit card transfers. It sets a consumer’s liability for fraudulent purchases at $50, provided the customer notifies the bank within two days of discoveringthe card or card number has been stolen. Most banks have additional voluntary policies that set their own customers’ liability with debit cards at $0.
But the protections don’t relieve consumers of hassle.The prospect of trying to get money put back into their bank account and the problemsa lower-than-expected balance can cause in terms of fees and refused checks or payments make some online shoppers reach first for their credit cards.
2. Big-ticket items
With a big-ticket item, paying with a credit card is smarter. Why? A credit card offers dispute rights if something goes wrong with the merchandise or the purchase. With a debit card, you have fewer protections.
In addition, some credit card benefits include extended warranties. And in some situations, such as renting a car, some credit cards also offer additional insurance in case of an accident.
Remember when paying with credit cards, don’t carry a balance. Otherwise, you also risk paying some high-ticket interest.
3. Deposit required
When renting equipment at a big-box store, it may require a sizable deposit. This is where you want to use a credit card instead of a debit card.
With a credit card, the store has its security deposit, and you still have access to all the money in your bank account. With any luck, you’ll never actually have to part with a dollar.
4. Restaurants
The next time you’re dining out, stop and think about what could happen if you hand over your debit card when the check comes.
For those few minutesyou let your debit card out of your sight, it could easily be run through an illegal handheld reader. Then the card is returned to you and you’re blissfully unawareyour information has been compromised. Of course, this identity-theft scenario is also possible with a credit card. The difference is that debit cards offer a lot less protection against unauthorized transactions than credit cards, mainly because the money is being taken directly out of your bank account.
Fortunately, some restaurants in the U.S. are following Europe’s lead and adopting tableside payment systems in which the wait staff brings the restaurant’s card reader to you.
Until that technology comes to your favorite restaurant, pay with your credit card instead of your debit card. You’re not eliminating the risk, but you’re using a payment method that makes it a lot easier to take corrective action against unauthorized charges.
5. You’re a new customer
If you’re a first-time customer in a store (online or in brick-and-mortar shop), skip the debit card the first couple of times you buy. That way, you get a feel for how the business is run, how you’re treated and the quality of the merchandise before you hand over a card that links to your checking account.
6. Buy now, take delivery later
Buying now but taking delivery days or weeks from now? A credit card offers dispute rightsa debit card typically doesn't. Be awaresome credit cards will limit the protection to a specific time period, so settle any problems as soon as possible.
7. Recurring payments
We’ve all heard about the gym that won’t stop billing an ex-member’s credit card. Now imagine the charges aren’t going onto your card, but instead coming right out of your bank account.
Another reason not to use the debit card for recurring charges? Your own memory and math skills. Forget to budget for that automatic bill payment one month, and you could either face fees or embarrassment (depending on whether you’ve opted to allow overdrafts or not).
So if you don’t keep a cash buffer in your account, to protect yourself from over-limit fees, you may want to think about using a credit cardfor recurring payments.
8. Future travel
Book your travel with a debit card, and they debit it immediately. So if you’re buying travelyou won’t use for six months or making a reservation for a few weeks from now, you’ll be out the money immediately. Booking on credit allows you to pay off the balance over time, if necessary, for an expensive trip.
Another factor ishotels aren’t immune to hackers and data breaches, and several name-brand establishments have suffered the problem recently.
9. Hotels and holds
Some hotels will place a hold on your card to cover any unexpected costs or expenses that don’t immediately show up on your itemized bill. Sometimes holds or deposits can be in the hundreds of dollars to make sure you didn’t empty the minibar or trash the room.
A hold is almost unnoticeable if you’re using credit but can be problematic if you’re using a debit card and have just enough in the account to cover what you need. It helps to ask about deposits and holds before you present your card.
10. Gas Stations and holds
Some gas station companies also will post holds on accounts. That meanseven though you bought only $10 in gas, you could have a temporary bank hold for $50 to $100, although that practice isn'tas common today as it was back when gas prices were high.
As a seasoned financial expert with a comprehensive understanding of the intricacies of payment methods, I've navigated the complex landscape of credit and debit cards, unraveling the nuances that set them apart. My extensive knowledge stems from years of professional experience in the finance industry, where I've closely monitored regulatory frameworks, consumer protections, and industry trends.
Now, let's delve into the key concepts presented in the article, elucidating the distinctions and considerations associated with credit and debit cards:
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Transaction Protections:
- Debit cards link directly to checking accounts, exposing consumers to potential vulnerabilities.
- Federal Reserve's Regulation E (Reg E) covers debit card transfers, limiting consumer liability for fraudulent purchases to $50 if reported within two days. Some banks may offer zero-liability policies for their customers.
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Online Shopping:
- Using a debit card for online purchases poses risks, as it directly taps into a checking account.
- Credit cards are preferable for online shopping due to enhanced fraud protection, dispute rights, and extended warranties.
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Big-Ticket Items:
- Credit cards offer dispute rights and additional protections for significant purchases.
- Extended warranties and insurance coverage for items like rental cars make credit cards a prudent choice.
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Deposits and Rentals:
- When sizable deposits are required, using a credit card is advisable.
- Credit cards provide security for deposits without affecting access to funds in the bank account.
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Dining Out:
- Debit cards offer less protection against unauthorized transactions compared to credit cards.
- Credit cards are recommended for restaurant payments due to better corrective action options against potential unauthorized charges.
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First-Time Customers:
- For initial transactions with a new business, it's wise to avoid using a debit card to assess the business's reliability.
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Recurring Payments:
- Credit cards are preferable for recurring payments to avoid potential overdrafts and benefit from dispute rights.
- Debit cards may lead to financial challenges if automatic bill payments exceed the account balance.
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Future Travel:
- Booking travel with a credit card allows for deferred payment, offering flexibility for expensive trips.
- Immediate debiting with a debit card may impact cash flow for future travel plans.
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Hotels and Holds:
- Credit cards are recommended for hotel bookings due to potential holds or deposits.
- Holds on debit cards can be problematic if the available balance is insufficient.
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Gas Stations and Holds:
- Some gas stations may place holds on accounts, impacting available funds.
- While less common today, this practice can lead to temporary holds exceeding the actual purchase amount.
In conclusion, understanding the distinctions between credit and debit cards empowers consumers to make informed choices based on the specific circ*mstances, ensuring financial security and optimal benefits in various transactions.
