Thursday, August 6, 2009

Debit or Credit? which is better for you?

If you regularly purchase items with your "Debit Card" than you probably know that transactions can either be processed 1 of 2 ways. The cashiers can ask you "debit or credit?" If you choose debit you enter in your pin to finalize the transaction. If you choose Credit it requires you to sign your name. So whats the difference? Either way you are still using an ATM check card.

Well the difference is actually quite significant:

Debit (enter you pin)
When you enter your pin your bank is responsible for immediately transferring the funds to the stores merchant account. You can buy groceries, go home, and view the transaction online before the chicken even starts to thaw. The transaction is processed through an electronic funds Transfer similar to entering you pin at an ATM, but only provides limited liability protection against fraud. Just like ATM it also allows the option for cash back.

Credit (sign you name)
When you sign your name, you will notice that the transaction can take a few days to process and may appear first as pending. By signing your name, you are actually conducting the transaction on a network that provides additional liability protection from fraud. Banks can charge a higher fee for these transactions. Chase even now offers a check card rewards program, for this very reason.

Either transaction types costs you the same amount of money, but I am now starting to use my check card as "Credit" to take advantage of the Chase reward points which are about a 1% savings. It's too bad that it's at the stores expense.