They may look just like credit cards, but debit cards have different protections and uses. Sometimes they’re not the best choice.
Sometimes reaching for your wallet is like a multiple choice test: how do you really want to pay?
While credit cards and debit cards may look almost identical, not all plastic is the same.
“It’s important that consumers understand the difference between a debit card and a credit card,” says John Breyault, vice president of public policy, telecommunications and fraud for the National Consumers League. “There’s a difference in how the transactions are processed and the protections offered to consumers when they use them.”
With debit cards and credit cards, each payment method has advantages and each is also better suited to certain situations.
Here are 10 places and situations in which it can pay to leave that debit card in your wallet:
1. Online shopping
“You don’t use a debit card online,” says Susan Tiffany, retired director of consumer periodicals for the Credit Union National Association. Since the debit card links directly to a checking account, “you have potential vulnerability” if you have problems with a purchase or the card number gets hijacked.
For the same reason, Linda Foley, who founded the Identity Theft Resource Center in 1999, suggests not using your debit card for phone orders.
The Federal Reserve’s Regulation E (commonly dubbed Reg E), covers debit card transfers. It sets a consumer’s liability for fraudulent purchases at $50, provided the customer notifies the bank within two days of discovering that the card or card number has been stolen.
Most banks have additional voluntary policies that set their own customers’ liability for debit cards at $0, says Nessa Feddis, vice president and senior counsel for the American Bankers Association.
But the protections don’t relieve consumers of the hassle. The prospect of trying to get money back into their bank account and the problems a lower-than-expected balance can cause in terms of fees and refused checks or payments makes some online shoppers reach first for their credit cards.
2. Big-ticket items
Paying with a credit card is smarter for a big-ticket item, says Chi Chi Wu, staff attorney with the National Consumer Law Center.
Why? A credit card offers dispute rights if something goes wrong with the merchandise or the purchase. “With a debit card, you have fewer protections,” she says.
In addition, some credit card benefits include extended warranties. And in some situations, such as renting a car, credit cards may also offer additional insurance in case of an accident.
There are two caveats with credit cards. Don’t carry a balance or you’ll also risk paying some high-ticket interest, Wu says. And “avoid store cards with deferred interest.”
3. When a deposit is required
When Peter Garuccio rented some home improvement equipment at a big-box store, it required a sizable deposit. “This is where you want to use a credit card instead of a debit card,” says Garuccio, a former spokesman for the American Bankers Association.
With a credit card, the store has its security deposit, and you still have access to all the money in your bank account. With any luck, you’ll never actually have to part with a dollar.
4. At restaurants
The next time you’re dining out, stop and think about what could happen if you hand over your debit card when the check comes.
“For those few minutes that you let your debit card out of your sight, it could easily be run through an illegal handheld reader,” says Barry Bridges, a former writer and editor for The Simple Dollar and Bankrate. “Then the card is returned to you and you’re blissfully unaware that your information has been compromised.”
Of course, this identity-theft scenario is also possible with a credit card. The difference is that debit cards offer a lot less protection against unauthorized transactions than credit cards, mainly because the money is being taken directly out of your bank account.
Fortunately, some restaurants in the U.S. are following Europe’s lead and adopting tableside payment systems in which the wait staff brings the restaurant’s card reader to you.
Until that technology comes to your favorite restaurant, pay with your credit card instead of your debit card. “You’re not eliminating the risk, but you’re using a payment method that makes it a lot easier to take corrective action against unauthorized charges,” Bridges says.
5. If you’re a new customer
That way, you get a feel for how the business is run, how you’re treated and the quality of the merchandise before you hand over a card that links to your checking account.
6. When you buy now, take delivery later
Buying now but taking delivery days or weeks from now? A credit card offers dispute rights that a debit card typically does not.
Be aware that some credit cards will limit the protection to a specific time period, says Feddis. So, settle any problems as soon as possible.
7. For recurring payments
We’ve all heard about the gym that won’t stop billing an ex-member’s credit card. Now imagine the charges aren’t going onto your card, but instead coming right out of your bank account.
Another reason not to use the debit card for recurring charges? Your own memory and math skills. Forget to budget for that automatic bill payment one month, and you could either face fees or embarrassment (depending on whether you’ve opted to allow overdrafts or not).
So if you don’t keep a cash buffer in your account, “to protect yourself from over-limit fees, you may want to think about using a credit card” for recurring payments, Breyault says.
8. For future travel
Book your trip with a debit card, and “they debit it immediately,” says Foley. So if you’re buying travel that you won’t use for six months or making a reservation for a few weeks from now, you’ll be out of that money immediately. Booking on credit allows you to pay off the balance over time, if necessary, for an expensive trip.
Another factor that bothers Foley: Hotels aren’t immune to hackers and data breaches, and several name-brand establishments have suffered from the problem in the past. Do you want your debit card information “to sit in a system for four months, waiting for you to arrive?” she asks. “I would not.”
9. Hotels and holds
Some hotels will place holds on your card to cover any unexpected costs or expenses that don’t immediately show up on your itemized bill. They sometimes put holds on deposits in the hundreds of dollars to make sure you didn’t empty the minibar or trash the room.
A hold is almost unnoticeable if you’re using credit, but can be problematic if you’re using a debit card and have just enough in the account to cover what you need. It helps to ask about deposits and holds before you present your card, says Feddis.
Some gas station companies also post holds on accounts. That means that even though you bought only $10 in gas, you could have a temporary bank hold for $50 to $100, says Tiffany, although that practice is not as common today.
10. ATMs and pay-at-pump gas stations
Possible holds aren’t the only reason to pause before using your debit card at gas stations. Criminals are getting better at disguising skimmers and making them harder to detect in places such as gas station self-service pumps, says Kara Gunderson, point-of-sale manager for Citgo Petroleum Corp. Skimmers can also hide in ATM machines on bank property, says Foley.
“The devices are being found at small merchants, large merchants, urban, rural, new and old convenience stores, so nobody is exempt,” says Gunderson.
Gas stations had until April 17, 2021, to update their payment systems to be EMV compliant, meaning skimmer fraud could remain a threat for those that failed to comply.
For now, take a good look at the machine or card reader the next time you use an ATM or self-checkout lane. Does the machine fit together well or does something look off, different or like it doesn’t quite belong? “Make sure it doesn’t look like it’s been tampered with,” Foley says.
Although you can use a debit card or a credit card as a method of payment almost anywhere, in certain places like hotels and restaurants, it is recommended to use a credit card. In general, you can make a payment safer by choosing the method of payment according to the place where you’re completing a transaction. So, if you find yourself booking a hotel stay for your next vacation or shopping online through a new retailer, run your credit card just to be safe.