Check-Out Line Dilemma: Debit or Credit?

When you use a debit card, some features are the same whether you pick credit or debit. Both are withdrawn from your checking account, contain fraud protections, and can be tracked using online banking or your monthly statement.

But there are important differences. The first difference is how you verify your identity at the time of the transaction. Choosing the "debit" option means you plan to prove your identity by submitting a four-number password, commonly known as a personal identification number, or PIN. Some experts regard this as the most secure form of debit transaction.

Choosing the "credit" option means you plan to forego the PIN in favor of signing a receipt. You get a copy of the signed receipt. This route protects you from potential fraud if you forget to shield your PIN from a person standing near you.

Merchant pressure

Merchants often encourage consumers to pay with a PIN. Card readers may be programmed to always request a PIN, for example, forcing consumers to take a few seconds longer to push a "credit" button or ask the clerk to enable a signature-based transaction.

Some merchants only accept debit cards if they're used with a PIN. That's because using a PIN lowers the merchant's costs for handling the purchase. Some merchants also may encourage consumers to use a PIN by charging a fee for signature-based purchases. Policies vary, so check the rules before buying.

While merchants tend to prefer PINs, credit unions and other card issuers usually prefer signature-based purchases. That's because credit unions are paid a small amount known as an "interchange fee" when members choose the "credit" option for debit card purchases. This helps lower the credit union's costs for offering debit cards to members.

Account holds may affect your purchasing power. A "hold" is the amount set aside in your account at the merchant's request to cover a pending debit purchase. Signature-based transactions can be held for hours or even days before they are withdrawn from your account, so some gas stations will put a hold of $50 to $75 on your account to make sure they will be paid. That means you have less money available for other debit card purchases until the hold is removed, which may take hours or even days.

Choosing "debit" gives you:

• A debit card purchase authorized by entering a PIN.
• The quickest way to check out, in most cases.
• The ability to get cash back.

Choosing "credit" gives you:

• A debit card purchase authorized with your signature.
• Access to more stores, since three times as many stores accept signature-based debit purchases as accept PIN purchases.
• "Chargeback" protections that allow you to get your money back if there is a dispute with the merchant.
• More "points" when consumers are enrolled in reward programs that encourage debit card usage.

©2007 Credit Union National Association Inc.