A question that often stumps many is whether it’s better to use a debit card or a credit card when making a purchase. Just for a quick recap. A debit card requires you to enter a PIN (personal identification number) when you use the card at a retail store (as if you were withdrawing money from an ATM) and you can get cash back. A credit card doesn’t require a PIN, you can’t get cash back, and you must sign the merchant’s receipt copy if the purchase is more than $25.
The confusing part is that today, banks issue Visa and MasterCard branded debit cards, so the same card can function as either a debit card or a credit card. With these joint cards, the money is taken from your linked checking account regardless of whether you use the card in a debit or credit transaction. And because of this, many folks incorrectly believe it makes no difference at the store whether you use the card as a debit or credit transaction. But as Paul points out in the article, the choice you make is really important.
So the next time the store clerk as you “debit or credit,” keep the following in mind. First, credit transactions tend to be more secure than debit transactions. Debit transactions are processed through the electronic funds transfer system, with comes with fewer cardholder protections. There is also a second consideration to keep in mind–rewards programs.
Many debit/credit cards today come with rewards programs. Our debit card earns us American Airlines miles. But here’s the catch. We only earn those miles for transactions that are processed as a credit. Why? Because debit transactions are not processed through the credit card issuer. As a credit transaction, the credit card company earns a percentage of the transaction from the merchant, which helps pay for the rewards program. So if you want to earn the miles or points or cash back that your bank card may offer, always use the card as a credit card, not a debit card.
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