Using Debit vs Credit Cards in Everyday Life

Shop owner hands pin acceptance device to customer
••• Betsie Van Der Meer / Getty Images


At first glance, fees might make you favor debit cards in the debit vs credit competition. The worst fee you'll find in a typical debit card is a POS fee -- charged when you use your debit card at a retailer using PIN number. While the tide is shifting away from banks charging these fees, you may still encounter them. Prepaid debit cards are another story altogether, and are notorious for charging high fees (although those fees are also falling).

Liability Risk:

Consumer protection varies when it comes to debit vs credit cards. Lawmakers put debit cards and credit cards into different categories. To reduce the debit vs credit divide, many issuers offer to give you a similar level of protection -- but there are differences. The greatest risk is the fact that you open your checking account to the world (see below). For details on how the laws differ, see Debit vs Credit Liability (if you're card is missing, see Lost Debit Card? Act Fast!).

Card Blocking:

When you use plastic at some retailers (gas stations in particular), they 'block' your card. This means they authorize and reserve money in your account - typically $50 to $100. They don't know exactly how much you'll buy, but they want to make sure you can afford it. If you only buy $20 worth of gas, they won't release the remaining amount immediately -- it can take several days. During that time, you don't get to use the blocked money and you might bounce checks or incur overdraft charges.

There is no difference in how retailers block debit vs credit cards.

Opening Your Account to the World:

Your checking account hold liquid cash that you're planning to use soon. By using debit vs credit, you expose that cash to the world. Any retailer can make a mistake and pull too much money -- and you'd be out of luck (at least for a while). Furthermore, you might use your PIN all over town. If that number (intentionally or accidentally) gets into the wrong hands a scammer could create a fake card, use your PIN at an ATM, and walk with your cash. Again, you might get your money back after you prove it was fraud -- but you'd have to jump through some hoops.

Overdrafts and Rubber Checks:

Using your debit card as you run around town doing errands can create bounced checks and overdraft costs. Even a $4 sandwich can create a $40 overdraft charge. Why not just use credit? Even a $60 annual fee on your credit card is a small price to pay for knowing you won't bounce checks and start a chain reaction of overdraft fees.

Not Accepted Everywhere You Want to Be:

9 times out of 10, nobody will know whether you're using a debit card vs a credit card. However, some companies won't treat them the same way. Rental car companies have been known to demand a real credit card and deny debit cards. Their argument is that a credit card implies a minimum level of creditworthiness and responsibility.

Giving up Free Money:

A common reason for using debit vs credit is that you're spending money you actually have and avoiding interest charges from the credit card company. If you indeed do have enough money for your purchase, why not use a credit card and get a 30-day interest free loan? If you don't carry a balance on your credit card -- and you wouldn't have a balance if you use the reasoning above -- then you can generally pay off all your purchases monthly without paying interest. Keep your cash in a savings account, earn a high yield, and pay once a month.