If you ever wondered about the difference between credit and debit cards you’re not alone. They both provide a safe, convenient way to make purchases online or in person without having to carry cash. The key is understanding how to use them to your best advantage.
What’s the Difference?
More people than ever are opting to pay with plastic. According to American Consumer Credit Counseling, 80% of consumers use their debit card to pay for everyday purchases such as gas, meals, and groceries. But selecting “credit” when using a debit card is not the same thing as using a credit card. Your debit card is attached to your checking account; a credit card is a line of credit.
When you use your debit card, your purchase is deducted from your checking account. This means you can only spend what you have. It’s perfect for everyday expenses like groceries and gas, especially if you are on a budget and want to avoid racking up debt. Debit cards provide the best of both worlds – the ease and safety of a credit card, and the spending discipline of cash or checks.
A credit card requires approval from a credit card company and comes with a credit limit, which is the maximum amount you can spend on your credit card. It allows you to make major purchases and the option to pay them off over time. One of the pitfalls of credit cards is incurring debt with interest and late charges if you aren’t careful. But with wise and careful use, your credit card is a great financial tool for helping you build a credit history. You may also take advantage of rewards programs such as earning airline miles.
Choosing Credit or Debit
When you pay at the store with your debit card, you may be prompted to choose between debit or credit. What does this mean? Choose debit, and you will be prompted to enter your PIN to complete the transaction. Choose credit, and you’ll be asked to sign your name and the transaction. Sometimes when selecting “credit” a hold will be placed on your account that may be more than the actual charge (like when buying gas, reserving a hotel room, or renting a car).
If you choose debit, the system may freeze this amount of money in your checking account, but with a credit card, the charge goes against your credit limit and won’t affect your actual cash on hand. Using your debit card helps stores too. The store merchant typically pays a lower transaction fee for debit purchases vs. credit.
Use Your Debit Card for Cash
Save yourself a trip to the ATM with your debit card purchase! When checking out using “debit”, most merchants allow you to request cash-back before entering your PIN. So if your purchase is $30 and you want $20 in cash, your checking account will go down by $50 - but you’ll have $20 of that in cash to spend elsewhere.
A cash advance on a credit card may require you to pay a finance fee. When it comes to accessing cash from your account, a debit card is the better choice.
Both debit and credit cards offer fraud protection so you’re not responsible for any unauthorized transactions. If you discover a fraudulent transaction, it’s important to report it immediately so it can be investigated.
If you have questions, we are here to help. You can get a debit card with any of our checking accounts, or learn more about credit card options at Citizens Bank that best fit your needs.