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Debit Card vs. Credit Card, What Are The Differences ?
Ah, the "good old days". If you are a baby boomer, like me,
then you probably remember how important it was to rush to the
bank on payday. You had to get there before the teller lanes
closed so that you could have your "cash allowance" for the week.
Otherwise, if you needed cash you had to write a check, then go
to the bank, and "cash" the check for real cash.
Fortunately the days of the mad rush to get cash from the bank
are long gone. We now enjoy the convenience of using a nearby
automatic teller machine (ATM) or you can even get "cash back" at
your local grocery, hardware or convenience store.
The card you use at the ATM is known as a debit card. When
debit cards first appeared it was easy to tell them apart from
credit cards. Debit cards didn't have a credit card company logo
on them; instead, they usually just had your bank name, your
account number and your name.
Today debit cards look exactly like credit cards even carrying
the same logos. Both types of cards can be swiped at the checkout
counter , used to make purchases on the internet, or to pay for
the fill-up at the gas pump.
When you use your debit card to make a purchase, it's just
like using cash. The account that is attached to your debit card,
in most cases your checking account, is automatically debited
when you use your debit card. The cost of your purchase is
deducted from the funds you have in that account.
On the other hand, when you use your credit card to make a
purchase you are using someone's else's money, specifically the
issuer of the credit card, usually a banking institution.
In effect, you agree to pay them back the money you borrowed
to make your purchase. In addition you will also pay interest on
the money "loaned" to you at the rate which you agreed to when
you applied for their credit card. This is known as the annual
percentage rate (APR).
While the two cards might act and look alike, the levels of
consumer protection that each type of card provides can be
different.
Under federal law, if someone steals your credit card you're
only responsible to pay the first $50 of unauthorized charges.
However, if you notify the credit card issuer before a thief is
able to make any charges you may be free from all liability. If
the credit card is not physically present when an unauthorized or
fraudulent purchase is made, such as over the internet, you're
also free from liability for those charges.
MasterCard and Visa offer zero-liability protection where you
won't pay any charges if someone uses your credit card to make an
unauthorized purchase.
The protection offered to debit card fraud is similar but with
a few exceptions. For example, your liability under federal law
is limited to $50, the same as for a credit card, but only if you
notify the issuer within two business days of discovering the
card's loss or theft. Your liability for debit card fraud can
jump up to $500 if you don't report the loss or theft within two
business days.
And if you are the type of person that gives a passing glance
to your monthly bank statement, you could be totally liable for
any fraudulent debit card charges if you wait 60 days or more
from the time your statement is mailed.
Visa and MasterCard zero-liability protection applies to your
debit card but only for transactions that do not involve the use
of your PIN (personal identification number).
Additional protection against fraudulent use of your credit or
debit cards may be available through your homeowner's or renter's
insurance. Check your policy or with your agent for more
information about your coverage.
Also be aware that you should contact your card issuer by
certified letter, return receipt requested, after you've
contacted them by phone to protect your consumer rights.
As for which card to use for what type of purchase, most
experts agree that you should use your debit card for the same
type of purchases you'd make as if you were using cash.
Therefore, it makes more sense to use your debit card than your
credit card at the grocery store or gas station (provided you
have sufficient funds to cover these purchases of course).
Avoid using your debit card for any online purchase or for
something which is expensive. Why ? You'll find it much easier to
dispute a charge when you use your credit card. If your
gold-plated, limited edition, hip-swinging Elvis wall clock
arrives broken, your credit card company will remove the charge
until the problem is resolved.
With your debit card you are stuck dealing with the merchant
directly to resolve any problems with a purchase, even if your
banking institution could really use a gold-plated, limited
edition, hip-swinging Elvis wall clock of their very own.
© 2004, www.yourfreecreditreportnow.com
Author: James H. Dimmitt.
James is editor of "TO YOUR CREDIT", a weekly free newsletter.
Subscribe to the newsletter by visiting http://www.yourfreecreditreportnow.com.
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