Debit Differences

When you go to make a purchase and you whip out your debit card, the clerk will most likely ask, "Debit or credit?" That's because the debit card can be used either way -- as a debit card with a secret PIN code, or like a credit card, where you simply swipe and sign. We'll explain some of the other differences.

The Debit Debate

The ATM card, it was the first of the debit cards to hit the market, and it's still around -- you use it when a merchant asks you to put in a PIN number. As Fritz Elmendorf with the Consumer Bankers Association explains, "The funds are electronically withdrawn from your checking account immediately."

Then there's the next generation debit card -- similar to a credit card -- you sign for purchases. It can be swiped by a credit card reader and then go through the credit card authorizing network. The money for these purchases may not come out of your account immediately, as it does when you use your pin number. There's typically a day or two of lag time.

Choosing a Card

How do you know which one you have? Look for a bug on the card -- either MasterCard or Visa. If it's there, it can be used as a credit card or a PIN card. If not, it can only be used as a debit card with a PIN number, similar to the old ATM cards. Banks will allow you to choose between both kinds of cards, a card that has the bug and can be used both ways, or one that's PIN-based only.

Protection

Both kinds of cards offer equal protection. Whether it's a PIN-based or signature-based card, federal law says you can't be liable for more than 50 dollars of unauthorized transactions if it's lost or stolen.

No matter how you use it, the bottom line is debit cards can offer many benefits over a normal credit card:

It's easier to get one than a credit card. Generally, if you open a bank account, you can get a debit card.

With one, you don't need to carry around a pile of cash and a check book.

You don't need to show identification like when writing a check.

They are more readily accepted than checks.

But, of course there are some drawbacks:

You don't have a grace period. Once you enter your PIN, the money is generally withdrawn from your account.

If you don't write down every transaction, balancing your account can be tough.

In the past, if you used a debit card at a retailer, like a supermarket or drug store, you were typically not charged a fee. However, times are changing. According to John Hall from the American Banking Association, if you use your PIN number at a retailer like the grocery store, your bank may start charging a nominal fee of about 25 to 50 cents. Why? When your money comes out of your account immediately, the transaction is processed by the Electronic Funds Network, and the bank itself is charged for the service.

How can you avoid this fee all together? Hall says use your debit card through what's known as a signature-based transaction. This is when you are not required to punch in a PIN code, but you have to sign for the transaction instead. Merchants pay for the processing in this case, so the bank is not looking to recoup any money.

You can also ask your bank to waive the fee all together, which, as Hall says, many will do, especially if you have a relationship with more than one account at your bank. If not, he suggests shopping around for a bank that won't charge fees.

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