To simply answer this question, YES! There is a very big difference. To the customer, the difference is which card you’re using, but behind the scenes of the transaction and the check-out counter there is a lot more to consider.
What happens when you use a debit card? For a merchant, this option is about as similar to using cash as possible. Also, the transaction fees associated with using a debit card are not as straining to the owner. When you swipe your card and enter your pin, funds are immediately removed from your bank account. In the case that your account has insufficient funds, the bank either pays the amount and charges you an overdraft fee, or your card is declined.
On the other hand, when a credit card is used, the credit card company processes the transaction. Sometimes the funds are immediately deducted, but other times the store will “batch out” the credit card transactions from the entire day all at once at closing. Additionally, many credit card issuers (like Visa and Mastercard) have fees associated with using their cards. Thus, many stores will charge fees or have a minimum purchase required for credit card use.
So when is it best to use debit vs credit?
Use Credit Card When:
- Shopping Online: This way you will be able avoid fraudulent charges, dispute any fraud you notice, and you are not liable for any unauthorized charges.
- Making Large/Electronic Purchases: It is common for various credit card companies to offer warranty protection beyond what the manufacturer offers for the item.
- Traveling or Vacation: Again, anti-fraud protection is very important in this case. In the case that your card is stolen while abroad or a non-trustworthy ATM is used, your card and account can be protected. Also, if your debit card is used, the company may place a hold on your account thus preventing you from accessing your money.
Use a Debit Card When:
- The other party needs to be paid immediately
- Being on a budget: Using a debit card allows you to only use the money you allocate to your account, and you simply cannot use money you don’t have. You aren’t paying any interest so you know you only pay for what you purchase. In addition, those who have a harder time managing their finances might not be able to keep a credit card without placing themselves in debt.
- Best exchange on foreign currency
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