Many people think of debit cards and credit cards as interchangeable. This isn’t surprising given the fact that they look nearly identical and can both be used to pay without entering a PIN. With a simple swipe or tap, or by entering your card number, expiration date and security code online, you can complete a purchase with ease. However, it’s important to note that there are some very distinct differences between debit cards and credit cards, specifically when it comes to risk.
Let’s take a closer look at how debit cards and credit cards differ so you can protect yourself and make smart decisions regarding online payments.
Debit Cards vs. Credit Cards: How Do They Work?
First and foremost, it’s important to understand how debit cards and credit cards work. When you use a debit card the funds are withdrawn directly from your checking account, reducing your available balance. With a credit card, you’re essentially borrowing the money from your credit card provider. The charge is added to your credit card statement and reduces your available credit. At the end of the month, you’ll need to make a minimum payment toward your credit card balance, and any unpaid balance will typically accrue interest.
Debit cards and credit cards each have their own benefits. With a debit card for example, you are less likely to rack up debt. However, you should always be aware of your available account balance before you use a debit card, or you could run the risk of overdrawing your checking account and being slapped with overdraft fees.
Many credit cards also allow you to earn cash back or reward points for your purchases. Rewards programs are less common with debit cards, although some banks (including Bank5 Connect) do offer them.
Debit Cards vs. Credit Cards: Which is Safer to Use Online?
Let’s face it – online fraud seems to be growing every day. From phishing scams to fake shopping websites, it seems like everyone is trying to get their hands on our sensitive information. The unfortunate truth is that every time you make a payment online using a debit card or credit card, there’s a small chance that your card number could be compromised. For this reason, it’s important to know what protections are offered by each card type, and what risks you could potentially face.
Because funds are quickly deducted from your checking account when you make a purchase with debit cards, if a fraudster gets their hands on your debit card details, they could easily drain your account. This could leave you without the money you need to pay your bills while you dispute the charges with your bank. Additionally, having your checking account depleted could result in costly fees. Any uncashed checks you’ve written could bounce, and any scheduled online payments you’ve made could lead to overdraft fees or non-sufficient funds charges. Having a fraudster wipe out your checking account could also put your account below your minimum balance requirement, resulting in additional fees.
With a credit card on the other hand, fraudulent purchases don’t come directly out of your bank account. You’ll still need to report the fraud to your credit card provider and work through the dispute process, but you’ll still have access to the funds in your checking account. Furthermore, the Fair Credit Billing Act ensures that credit cardholders aren’t assessed disputed charges while the dispute is under investigation.
Credit cards typically also offer more protection than debit cards in terms of liability. If you report a compromised credit card within 60 days of it appearing on your credit card statement, your liability is capped at $50, per federal law. With a debit card, however, you typically have less time to report fraudulent transactions. By law, unauthorized debit card transactions must be reported to your bank within 2 business days. Otherwise, you could be on the hook for up to $500 if you report them within 59 business days. If you wait longer than 59 business days, you could be liable for every penny.
The Final Verdict: It Depends
While using a credit card for online shopping offers more consumer protection, the right card for you to use will ultimately depend on your unique financial situation. If you are struggling to repay credit card debt, you probably don’t want to rack up additional charges. Likewise, if your credit card is nearly maxed out, it’s probably not smart to make additional purchases with it. Above all, it’s not the type of card that matters, it’s how safe you are with it. Whether you decide to use a credit card or debit card when shopping online, it’s important to check your account frequently, report any unauthorized charges in a timely manner, and keep a close eye on your available credit limit and available checking account balance. It’s also important to be smart about which websites or apps you’re entering your card information into.