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April 14, 2024

With many people opting to pay for purchases with their EMV chip debit and credit cards for the added security and convenience, you might wonder if it matters which one you use at the cash register.  While both require you to either swipe or insert your card into the keypad, what happens after that depends on the card.

When you pay with a debit card at the register, you’ll need to enter your personal identification number (PIN) and sign the keypad once the transaction is approved. Credit card purchases do not require a PIN, but your signature is needed to complete the transaction. Debit and credit cards offer similar protections against fraud, but there are essential differences between the two that makes one a better choice in certain situations.

Keep the following in mind the next time you’re in the checkout line.

Debit Cards and Credit Cards – What’s The Difference?

A debit card lets you make purchases and withdraw cash based on the amount available in your checking account at your financial institution. It’s easy to think of debit cards as the new version of paper checks with one key difference.  Unlike paper checks, money from your checking account is withdrawn immediately to pay for the purchase.

A credit card is not tied to your checking account. Each time you use your credit card you are borrowing money against your credit limit, set by your credit card issuer. Your credit card allows you to take out a short term loan to make purchases which you must repay according to the terms and conditions of your credit card agreement.

Benefits of a Debit Card

Easily control spending

You can only spend the amount you have in your checking account. This makes sticking to your spending plan easy.

No credit check

Funds available on your debit card reflect your available checking account balance. You’re not borrowing the money, so there’s no credit check.

No annual fees or interest charges

Unlike some credit cards that carry a yearly fee for having the account, debit cardholders don’t pay ongoing fees to possess the card. Financial institutions do not charge debit card users interest to access their own money.

Benefits of a Credit Card

Fraud protection

While both types of cards offer fraud protection, an important distinction exists if unauthorized charges are made on your credit card. Under the Fair Credit Billing Act, your liability for fraudulent activity is limited to $50 when using a major credit card. If the fraud is reported after the card is lost or stolen, then you are not responsible for those charges.

To match these liability limitations with debit cards requires quick action on your part. If you fail to notify your bank or credit union of the fraudulent transactions within 60 days of the statement date, you may be liable for up to $500.

Rewards programs and other perks

Some credit cards allow you to earn cash-back points for purchases, frequent flyer miles, hotel stays or other rewards that can be used for credit card statement credit. If you pay your account balance in full each month, a rewards credit card might be worth it.

Travel with ease

Due to the high credit limits of credit cards, dollar amount holds placed on the card by car rental companies, hotels and gas stations are unlikely to interfere with your travel fun. When you need cash, use your debit card to withdraw funds from your checking account.

Which is Better? A Debit or Credit Card?

It depends.

Neither card is limited to purchases made in-store, online or over the phone. They can both be used to rent cars, make hotel reservations, pay for restaurant meals and a host of other everyday transactions.  But, because the debit card is attached to your checking account and is restricted to the available balance at the time of use, purchasing power is limited. 

If you’re looking for the better option when traveling, then you might lead with your credit card.

Here’s why.

While a debit card can be used while traveling, cardholders should be prepared for certain limitations. Using a debit card often means that cash planned for withdrawal is unavailable for several days due to the hold put on the card by the car rental agency or hotel. This might be a problem if you need cash for an emergency.

If, however, your goal is to take charge of your spending plan then a debit card might be the better choice for you. It makes tracking of everyday purchases easier with its ability to reduce the risk of overspending. Since you’re not borrowing money, debit cards also free you from interest charges that accrue on credit card purchases that aren’t paid in full each month.