Safe Online Payment Methods

hand holding credit card and wallet by laptop
Johnnie Davis / Getty Images

You always take a risk when you shop online: there’s a chance that thieves could steal your payment information and make purchases on your dime (or pay themselves fraudulently). That risk isn’t exclusive to online shopping – it can and does happen at brick-and-mortar stores as well – but it’s especially easy to put sensitive information in the wrong hands online.

You can rely on technology to a large degree.

Your information is usually scrambled (or encrypted) into a hard-to-read format. But even when you do everything right – even at large, reputable websites – there’s a chance of a data breach or intercepted traffic. It’s even possible that the trouble is on your end: something as simple as a keystroke logger can grab your card number or PayPal password.

It’s obviously important to keep your device secure and up to date, but what about the method of payment you use when shopping online – does that matter?

Payment Method Choices

You usually have a choice when it comes to paying: will you use a credit card, debit card, a payment service like PayPal, or some other option? Depending on your concerns, one of those choices might be better than another. Let’s look at the pros and cons of each payment method.

Credit Cards

The good: a credit card is often a good choice for shopping online. Fraud protection with credit cards is quite strong, and getting charges reversed is pretty simple (just report the suspicious activity to your card issuer or let them know you never received what you paid for).

No money comes out of your bank account – it’s the card issuer’s money that gets spent. As long as you act quickly, your liability can be limited to $50, and in many cases you won’t pay anything for fraudulent charges.

The bad: you might think of your credit card as a tool of everyday life. Perhaps you use it regularly for personal and business expenses, and you might pay automatic or recurring charges with the card.

If your card number is stolen, you’ll need a new card (and card number), you’ll have to update billing information in numerous places, and you may have to live without your card for a while as you wait for a replacement.

Tips: use your credit card only when you’re confident that it’s safe to do so and when you want the strongest consumer protection available. You can also get a one-time-use credit card number (depending on your card issuer) for online purchases, so it won’t matter if that number is stolen. Finally, consider getting an additional credit card that you only use online (or at sites you aren’t familiar with); you can keep a closer eye on that account and you won’t be inconvenienced if you have to ditch the card number.

Payment Services

The good: third-party payment services are also a good option for online shopping (PayPal is the most popular payment method, but others such as Google Wallet exist). These services can provide an extra layer of safety: instead of giving your credit card number or bank account information to  every website you shop with, you can keep that information in one central location (with PayPal, for example). If you shop at numerous sites or sites you’re unfamiliar with, you can reduce the number of places that hackers can find your information.

These services may also offer some level of “buyer protection” in case your goods never arrive or you get swindled.

The bad: when things go bad (if you have a dispute with a seller) these accounts can get frozen while the company investigates. If you make a habit of disputing charges (and the disputes don’t end up in your favor), your account might even get closed and you could be banned from using the service. You can certainly live without a PayPal account – there are plenty of places to shop online with other payment methods – but PayPal is sometimes the easiest way to pay.

Tips: when you shop online, use a credit card as the funding source for purchases (if possible). That way, if there’s a dispute and the payment service doesn’t decide in your favor, you can dispute the charges again with your credit card company where you might have better luck.

Debit Cards

The good: debit cards are inexpensive payment cards that pull funds directly from your checking account. You don’t need to apply, get approved, pay annual fees, or risk racking up debt like you do with a credit card. Although it’s not required by law, debit card issuers often offer “zero liability” protection similar to credit card protection.

The bad: a debit card is linked directly to your bank account. If the card number is used without your permission (or if there’s simply an error somewhere), money comes out of your checking account – and you might not be able to pay bills and expenses with a drained account. Yes, there are fraud protections in place, but it can take 10 long days for the bank to return money to your account.

Tips: unless you’re extremely vigilant and have set up alerts on your checking account (and you have plenty of extra cash available), avoid using debit cards if possible. If you simply can’t use a credit card or a payment service, a prepaid card can help insulate your checking account from any problems.