Debit and credit cards are both convenient forms of payment that shoppers often use interchangeably. However, there are differences between these two types of payment cards.
Due to these differences, there are certain pros and cons that come with using either of these popular payment methods.
Because debit cards are tied directly to your bank account, you can only use the funds that are available within the account. This helps minimize the possibility of accruing debt. Moreover, there aren’t typically many fees involved with debit card use — unless you make a purchase that overdraws your account or you withdraw money from an out-of-network ATM. You may even be able to avoid some ATM fees if you request cash back when making purchases at POS terminals.
There are two additional benefits of debit cards:
Because the debit card is connected to your bank account, you can run the risk of losing your money if someone steals your debit card or account information to make fraudulent charges. According to the Electronic Funds Transfer Act, you have two business days to report the theft to your bank or financial institution. After that, your liability could be as much as $500.
Another potential disadvantage of using a debit card is that you can only spend what’s currently in your bank account. Although this is a good strategy for avoiding debt, it may not be ideal if you have an emergency that requires more money than you have available.
One of the primary benefits of using a credit card is that it acts as a buffer between outside security threats and your bank account. Your card could be lost or stolen, but the money in your bank account stays safe.
Additionally, many card-issuers offer zero liability protection, or $0 fraud liability, which means that even if someone racks up fraudulent charges on your credit card, you’re not personally responsible if you report it right away. Some banks may even credit the stolen funds back to your account before they start their investigations.
Some credit cards also come with a range of benefits, including:
When you buy something with a credit card, you’re spending money you may not necessarily have at the moment. Because credit lines usually carry interest, you may end up spending more money paying down this debt over time.
On average, American households carry nearly $9,000 in credit card debt. Nationwide, the credit card debt totaled $925 billion in the third quarter of 2022. It’s also not uncommon for consumers to take out a second card with a lower interest rate to help pay off the first one.
Moreover, credit cards can carry a lot of fees — especially if you miss a payment. Nonetheless, even with a card that offers “free” perks and benefits, there may also be an annual membership fee.
Because of the pros and cons of these two payment methods, there are scenarios in which debit cards may be a better option, and there are cases where credit cards are the smarter choice.
As a general rule, here are some things to consider when deciding if using a debit card is the better option:
If you’re worried about fraud protection, credit cards may be the safer payment method. They’re even more secure since chip-enabled EMV credit card processing has become the norm in the U.S. and around the world.
Though when shopping online, credit cards aren’t inherently safer than their debit counterparts. Criminals can still intercept your account number and rack up fraudulent charges. However, as mentioned above, credit cards can offer more liability protection if this ever happens, making them a more secure option for eCommerce.
In addition, most major credit cards are accepted worldwide, making them the better choice when traveling abroad. By contrast, any debit cards you use may likely be out of network, potentially causing you to rack up higher ATM fees every time you withdraw cash, and possibly not converting at the best exchange rate.
Other scenarios to consider when using credit cards vs. debit cards include:
This information is provided for informational purposes only and should not be construed as legal, financial, or tax advice. Readers should contact their attorneys, financial advisors, or tax professionals to obtain advice with respect to any particular matter.