Choosing Debit vs. Credit With a Debit Card

The Cost and Fees for Choosing Debit vs. Credit at Checkout

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When you make a purchase with a debit card, you will often have the choice to choose a "debit" or "credit" transaction. This determines how much payment processors charge, how long it takes for money to move, and other things that impact both retailers and customers.

Learn what it means to choose both debit and credit and the fees associated with each, along with the benefits and risks of each option.

Paying Debit vs. Credit with a Debit Card

When you pay with a debit card at an in-person retailer, you may be given the option to select either "debit" or "credit" to complete your purchase. There are several differences between the two types of transactions.

Choosing "Debit" Choosing "Credit"
Offline transaction Online transaction
Enter a personal identification number (PIN) to verify your identity Sign a charge slip or on-screen for the transaction (no PIN)
May be able to request cash back No cash back
Purchases processed electronically Purchase runs through credit card networks (like Visa and MasterCard)
Lower merchant processing fees Higher merchant processing fees
Processed immediately or within the same business day May take several days for the charge to process
Usually no customer fees for debit transaction Authorization hold could tie up money in your checking account

In both cases, the payment for the purchase comes from your checking account. Unlike paying with a credit card, you are not borrowing money that must later be paid back, even if you choose a "credit" transaction.

Impact on Retailers

Since the money comes from the same account no matter whether you choose debit or credit for your transaction, its impact on consumers is generally lower. However, the difference is more significant for banks and retailers.

Merchants pay a percentage of the total purchase price for payment processing. The details depend on several factors, including transaction size and whether the card was present or not.

It’s often less expensive for retailers to process offline, PIN-based transactions than online payments. For small purchases, even offline fees can add up to a meaningful percentage of a purchase, eating into retailers’ margins.

The Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 limits debit card interchange fees to 21 cents plus 0.05% of the payment. In some cases, merchants might pay an additional one-cent fraud-prevention charge.

Those rules only apply to “covered transactions,” which include cards issued by some of the largest card issuers nationwide. However, other card issuers can charge more. For example, those rules only apply to banks and credit unions with $10 billion or more in assets. 

The Federal Reserve reported that in 2018, debit card transaction fees were typically around $0.24 per payment. On average, exempt (non-covered) transactions cost $0.54.

To pass on these costs to customers, some merchants may add credit card surcharges, which aren’t allowed with debit card purchases under federal law. Debit card minimums are another tactic, but payment networks prohibit those minimums.

Impact on Consumers

For customers, even though the money comes from the same place no matter which type of transaction you choose, the choice still affects your bank account.

For example, if you pay for gas at the pump, you know that you swipe your card before pumping gas. The machine doesn’t know how much gas you are going to buy, so the gas station payment system is set up to make some assumptions.

If you use a debit card, the system will check to see if you have at least $50 or $100 available in your account—effectively pre-authorizing a purchase for that amount. If authorization comes back, the retailer “blocks off” that $50 or $100 so you can’t spend it elsewhere.

You might only buy $10 worth of gas, but $100 is frozen in your account for several days. In a worst-case scenario, you could end up bouncing a check or incurring an overdraft fee.

Using your debit card for credit transactions can also come with financial incentives. Banks prefer when customers choose a credit transaction since they receive income from merchant fees.

To increase their revenue, banks and other financial institutions may offer rewards for credit transactions, such as:

Risks from Using Debit Cards

While using your PIN makes the transaction clear your account more quickly, it also creates a security issue. By entering your PIN, you run the risk that:

  • Someone else will see your PIN
  • A hidden camera or another fraud device could record your PIN
  • The retailer’s device could give up your PIN in a data breach

If your PIN is compromised, scammers have direct access to your checking account. They can create fake cards and spend your money, or they may even create a fake ATM card to attempt cash withdrawals.

Debit cards and credit cards both provide consumer protection, but credit cards are more generous. Stolen debit cards expose you to more risk.

With credit cards, you’re limited to $50 of liability for fraudulent use. Plus, a thief who uses a stolen credit card isn't spending your money and cannot empty your checking account.

With a debit card, your losses are limited to $50 if you notify your bank or credit union within two business days of learning about the loss of your card or the theft of your PIN. However, you could be liable for as amuch as $500 if you don't tell the card issuer on time.

If you don't report an unauthorized transaction that appears on your statement within 60 days of the statement being mailed, you risk unlimited loss on unauthorized transfers made after that period. This means you could lose all the money in your account.

Given the added risk of loss, plus the potential for direct access to your checking account, it may be safer to use a credit card rather than a debit card when making purchases. However, you may want to stick with a debit card if:

  • You can't qualify for a credit card
  • You want to help a child or young adult develop good spending habits
  • You want to avoid any debt, even temporary debt without interest charges
  • You struggle to pay off your credit card every month

To address some of those problems, work on improving your credit history to qualify for less expensive credit cards or try a prepaid debit card, which does not have a direct link to your checking account.