Debit vs. Credit Cards

Nowadays credit cards and debit cards look almost identical. They have the same Visa or Mastercard logos on them as their credit card counterparts and can be used at all the same places – at the store, over the Internet, or to pay for gas. However, there are a few important differences to

The key difference and the most obvious, between credit cards and debit cards is that a debit card is attached to your checking account. When you make a purchase on your debit card, the amount of your purchase is deducted from your checking account. It is essentially paying cash, but with plastic. On the other hand, when you make a purchase on a credit card you are borrowing money from the credit card issuer. You must pay a monthly interest rate on the loan from the credit card company.

The less obvious differences between credit cards and debit cards is the level of consumer protection each one affords. If your credit card is stolen, under federal law you are only responsible for $50 of unauthorized charges. Further, if you notify your credit card company that your card was stolen before any charges are made you may not be liable for any charges at all. Finally, if the credit card is not physically present when a fraudulent purchase is made, such as over the internet, you are also free from liability for those charges.

With a debit card you are also only responsible for $50 of unauthorized charges, but you must notify the debit card issuer within 2 days of its theft or you can be liable for up to $500. If you fail to notify the debit card issuer for more than 60 days after you receive your monthly statement you could be liable for all of the fraudulent charges.

Visa and Mastercard have zero-liability protection available for debit cards, but this only applies to your debit card on transactions that do not require the use of your PIN.

Which card should I use for which type of purchase?
It is a good idea to carry both a credit card and a debit card. Experts say that you should pay for any purchase that you would normally pay in cash for on your debit card. For example, it is a good idea to use a debit card for buying gas, shopping at the supermarket, or making other such purchases. However, you should use a credit card for online transactions and expensive items. This is because it is much easier to dispute a charge on a credit card than on a debit card. A credit card issuer will remove the charge until a resolution is made, but a debit card charge will not be removed without dealing directly with the merchant.