FOR IMMEDIATE RELEASE
PRLog (Press Release) – May 16, 2011 – Connecticut Better Business Bureau Explains the Differences between Two Most Popular Methods of Payment
They may look alike and they act alike, but there are significant differences between credit and debit cards.
When they first came out, debit cards were used with a Personal Identification Number (PIN) to withdraw money from an ATM, and credit cards were used for purchases. These days, many consumers use debit cards to avoid increasing their debt load. You can’t spend more than is in your bank account.
The line between the two types of cards appears to be somewhat blurred, since debit cards now sport familiar credit card logos and may be used to make purchases, but they do not have the same protection and versatility as credit cards.
The main difference between the two is that when you use a credit card you use someone else’s money. When you pay with a debit card, you use your own money and it is quickly withdrawn from your account after a transaction. In addition, if a credit card is used for unauthorized purchases, the protection is much broader than with a debit card and resolving disputed purchases much simpler.
If either card is lost or stolen, under federal law, your liability is capped at $50, and if you report a credit card stolen right away you may not have to pay any penalties for unauthorized use. Major credit card issuers also offer zero-liability policies, however, if you lose your debit card and don’t report it missing within two business days, then that liability may jump to $500.
Connecticut Better Business Bureau offers the following guidelines for when to use a credit card versus a debit card:
•Putting down a deposit: Unlike credit cards, debit cards are linked to your bank account – not a line of credit. This comes into play when you have to put down a deposit of several hundred dollars to rent a car. With a debit card, the amount of cash you can use for a deposit is determined by how much money is in your bank account.
•Transactions online or by telephone: When you make a purchase online or by phone, you want to make sure you receive the item, that it is good condition and that it is exactly what you ordered. With a credit card, the dispute resolution process is simple and fast, and you have an entire billing cycle to resolve a problem. With a debit card, the money is immediately withdrawn from your bank account, and you must fight to get that money back into your hands.
•Protecting a purchase or rental: If you rent a bike, stop for a meal and find out the bike was stolen, the credit card protects you from financial liability. Credit cards also offer additional warranty protection on purchases.
•Rewards programs: Another advantage to using a credit card is that it can reward you with travel miles, two or three percent back on the month’s purchases and even end-of-month cash back on gasoline purchases with a gas credit card.
A helpful rule of thumb is to use debit cards for ATM withdrawals, and cash-and-carry purchases such as groceries and gasoline, and credit cards for large purchases, rentals and online transactions.
One advantage of using a debit card for in-store purchases is that you can avoid ATM withdrawal fees by using your PIN for a cash back transaction.
Terms, conditions, and liability vary. Your financial institution and credit card issuer can help you make educated choices. There are many different credit card rewards programs, so shop around for a card that suits your needs.
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Founded in 1928, Connecticut BBB is an unbiased non-profit organization that sets and upholds high standards for fair and honest business behavior. For more advice on finding companies and businesses, start your search with trust at www.bbb.org.
