Credit vs Debit Transactions with Your ATM Card

by David Ning · 27 comments

I handed him my debt card and the cashier asked if I wanted to charge it credit or debit. Is he insane?

A few years ago when I first got my debit card, I was confused whenever a cashier asked me whether I wanted to charge my card using credit or debit. Debit please, I always said, wondering whether those people recognized that it’s actually a bank card. Eventually, I found out that my debit card was capable of transactions through the credit card network as well. It would still draw money from my bank account though, so the only difference seemed to be just signing versus punching my pin.

My mom always said “anything related to money shouldn’t be seen in public”, so I started requesting for a credit transaction just in case someone saw me input my pin. Little did I know that I also:

  • Added Fraud Protection – Credit transactions go through their respective network (Visa or Mastercard depending on the logo on your card), which has a zero-liability policy. Send the debit transactions without the credit card network and you could be liable for up to $500.
  • Increased Reward Points – Some bank cards even let you accumulate reward points with your debit cards, but only if you use it through the credit card networks.
  • Get No Cash Back – One of the great features of using a debit card is that you can take money out using the same transaction without any additional fees. Say credit and you don’t get the same convenience.
  • Potentially Lowering the Merchant’s Margin – Bigger companies negotiate their credit and debit transaction fees, but smaller merchants who don’t have the same leverage may be charged more for credit transactions. Next time you use your debit card at a local store you want to support, consider saying debit.

Note that whether it’s a credit or debit with your ATM card, the money is still coming out of your bank account (so not 0% balance transfer credit cards by any stretch). Unless you opted out (assuming your bank even lets you do it), you will be charged with overdraft fees if your account doesn’t have enough money to cover your expense.

So what do you say when you hand over your debit card? Debit or credit?

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{ 27 comments… read them below or add one }

Miranda October 16, 2009 at 5:54 am

I think you make a good point about choosing carefully when you run your card as debit or credit. Normally, I choose credit, because of the protections and the concerns over entering my PIN. In my town, I actually use cash at many of the smaller vendors. It’s easier for them all around — and no transaction fees at all.

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Daniel @ Sweating The Big Stuff October 16, 2009 at 7:21 am

Generally it doesn’t make a difference, although the screen automatically tries to make you punch in your number, so you have to press cancel in order to use your card as a credit card. But that always scares me…’I just put my card back in my pocket. Will pressing cancel stop the entire transaction and mean I have to swipe my card again??’

“smaller merchants who don’t have the same leverage may be charged more for debit transactions.” You meant credit, right?

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MoneyNing October 16, 2009 at 8:46 am

I haven’t tried pressing cancel, but I may try it sometime just to see.

If you want to sign for it, the cashier needs to specifically say that it’s a credit transaction (even though it’s still a debit card). Once you are asked to type in your pin, the cashier already pressed “debit”.

Yes I mean credit. Thank you for pointing it out and it’s been corrected.

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finco86 October 16, 2009 at 9:26 am

My bank charges me $.25 for every debit transaction so I always use credit. As far as hitting ‘Cancel’, it doesn’t make you swipe your card again. If the difference in cost between debit and credit is going to make or break a company, then they are not going to be around long. This should already be factored into their business model.

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Daniel @ Sweating The Big Stuff October 16, 2009 at 9:37 am

I used to have a card with a 50 cent charge for each debit transaction. This was before I realized it could also be used as a credit card, and I closed the account. I’m glad I didn’t know at the time, though, the bank had no redeeming qualities.

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MoneyNing October 16, 2009 at 9:52 am

If you bank charges $0.25 for each transaction, you should look for one that doesn’t (most don’t).

I’m not implying that some merchants need that cost to survive, but when small local businesses are thriving, that’s better for the economy than the big corporations getting all the money.

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hg3300 April 30, 2013 at 1:33 pm

“hitting ‘Cancel’ [...] doesn’t make you swipe your card again. ”

depends on the POS. Some cancel the entire thing when you hit “cancel”, some don’t. My store does, and it usually annoys me when regulars do that when using their cards.

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Nip92 October 16, 2009 at 10:48 am

Never knew of the differences and I always thought the visa logo on my Wells Fargo card was stupid. It’s another way that those institutions muddy the water to confuse customers and profit.

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Financial Samurai October 16, 2009 at 1:35 pm

I still don’t get the use of a debit card when you can use a credit card and get something out of each transaction.

Why carry cash, a debit card, and a credit card in your wallet?

The combo should be some cash, and one credit card, and that’s it. Keep it simple.

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hg3300 April 30, 2013 at 1:35 pm

Credit cards need to be paid off. But with a debit card, the money is automatically taken out of your account. That’s why we have debit cards. And let’s not forget the obvious withdrawal. You need your debit card to make withdrawals, including ATM withdrawals.

Now, checks, those are becoming obsolete.

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Jane October 16, 2009 at 3:43 pm

I never liked the idea of the debit card. Merchants being able to directly withdraw money from my bank account felt like a loss of control. What if an employee used my info to get money out of my account or they inadvertently cause a double charge (as happened when a gas station double billed my purchase)? At least with a credit card you can dispute a charge without worrying about lack of fund fees from the bank. Also, instead of a debit card I use old fashioned checks. I don’t use them often, but the gal who cuts my hair gets a check from me. And I use the check register to keep track of my balance.

Others live by the debit card. An ex used his debit card all the time, but he never kept track of his purchases. So if he wrote a check and it wasn’t cashed right away, he would end up with tons of overdraft charges.

So, it seems like a personal comfort level which dictates debit or credit.

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Malfeasant July 12, 2010 at 8:09 am

merchants don’t directly withdraw money from your account, that’s what card processors are for. if an employee were inclined to steal your card number, they could do it equally easily if you chose debit or credit- but once stolen, they could only use it as credit- debit will not work without the pin and the card’s mag stripe. in reality, employees stealing card numbers is quite rare. i’m not saying it doesn’t happen, but the odds are pretty slim. actually, someone who is going to steal your bank account information will more likely send you an email urging you to click a link to a faked copy of your bank’s website and log in. if you fall for it, chances are you won’t even remember you did it, because it seemed so routine.

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kitty October 18, 2009 at 11:40 am

“I still don’t get the use of a debit card when you can use a credit card and get something out of each transaction. ”

I only see two reasons:
1) the holder has one of those new high interest checking accounts that pay very high interest (4 to 5%) but require a certain number of debit transactions a month
2) the holder is a credit-aholic who doesn’t understand the difference between credit and spending money. I.e. if you and I look at the price tag of an item we like that costs say $100, we may think “this cost $100, it’s expensive” regardless of how many credit cards we have in our wallet. A credit-aholic thinks “oh, I can just charge it so I am not paying real money”. These people should probably stay away from cards or at least have a credit card cool off period so that they can develop some disciplilne, learn the value of money and get a clear idea of what they can or cannot afford.

But for those of us who do understand the value of money and know that borrowed money aren’t really our own, credit cards provide nice advantages. Also – there is this wonderful feature called “automatic payment of the full balance” that allows to combine debit card’s feature of having the money taken from your account with all the advantages of credit cards like grace period and the ability to actually check all of the purchases, check that all merchants delivered everything as promised before the money actually leave the account.

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John December 14, 2009 at 12:27 pm

I don’t think I even know the pin to my debit card. I get points on my Amazon-Visa card and every few months I get a $25 credit to my Amazon account that I can use toward any purchase from any retailer on Amazon. com. I’ll keep the cash in my checking account until *I’m* ready to part with it.

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Malfeasant July 12, 2010 at 8:16 am

generally, those “incentive” cards are paid for by the merchants in the form of higher transaction fees. if you only go to best buy/walmart/other big box stores, no big whoop. but if you go to small businesses, don’t be too surprised if they don’t jump at the chance to take your card. compare to going to restaurants and not leaving a tip.

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No1 April 22, 2012 at 5:24 am

Actually all credit cards and debit cards ran as credit transactions on the Visa or Mastercard networks cost the merchant the same amount for that network as specified in that merchant’s contract with the payment processor.

With the “incentive” cards, the financial institution just shares some of the loot that would go to the card issuer with the consumer instead of keeping it all fie themselves. In exchange, they usually have a higher interest rate. Just pay it off during the grace period and that is not a problem though.

And generally a small business will only care if it’s a small charge, under $10 for example where the per transaction fee really makes a difference for them.

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Savin'Funds August 29, 2012 at 4:47 pm

You should also know studies have shown that you spend more when you use a credit card (vs. cash, and to a lesser degree debit) and credit card companies know this. So they offer incentives which will make you use their card versus the other ones in your wallet, and with the hope you spend more (which research shows you will), which in turn gets them more in transaction/processing fees. And most who do this (meaning those who chase “incentives), don’t pay off the card each month. But even if you do pay the card off each month, you have spent more than you would have otherwise. In addition to the higher interest rates that go along with these cards. The point being, if you think you are helping yourself saving points, earning miles or cash back bonus- be careful that you aren’t really hurting yourself in extra purchases.

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Pete December 15, 2009 at 7:32 am

I never liked debit cards and never used them until I recently switched credit unions. My new CU has a high interest checking account and for every month that I use my debit card (credit transactions) 12 times, I qualify for 3.25% on my checking. Since switching, we keep all of our savings and sinking funds in our checking account and with an average balance of $7-8000, we pocket around $20 a month in interest.

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Zack June 1, 2011 at 2:54 am

I like using debit because typically it post immediately and the funds are taken right out of your account. Credit transactions can take a few days to post. For those of us that like to keep a tight grip on our checking account balances, debit can be better. Otherwise, choosing “credit” works great.

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jeff October 13, 2011 at 4:07 pm

I have my debit/credit card through Wells Fargo and my direct deposit won’t go through until about noon Friday but I need to use it at 8am. Can I use my card in the am as credit and be ok since the money will be there by noon?

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MoneyNing October 13, 2011 at 6:39 pm

Actually you will need the money to be available in your account before you can use it. The only difference between credit and debit with your ATM card is which transaction network your purchase is processed through.

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Megan @ Education Cents March 5, 2012 at 10:28 am

Before we got our Rewards credit card (which we now use to pay for gas and groceries), I would always choose debit at the grocery store (so I could also get cash back if I wanted it) and credit at the gas station.

Chosing credit at the gas station makes the most sense because I’ve been told by numerous people (and bloggers) that it’s relatively easy for a thief to install a PIN reader on a gas pump, and I didn’t want to run the risk of that sensitive information being stolen.

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Jesse Kirkland July 1, 2012 at 10:34 am

How do you find out if your bank charges per credit or debit transaction I bank with usaa and plan on joining ally does anyone know if they charge per debit or credit transaction

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Philips September 15, 2012 at 9:51 am

Can I use my debit card for on-line shopping? If yes, how?

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Danny October 17, 2012 at 12:22 am

I prefer using credit card rather than debit card because, i only have limited transactions for a month after that i will be charging some amount for each transaction . So,as for me using Credit card is the best rather than the Debit card

This is one way of the way to save your money i.e., using credit cards u can save your transaction fee and it is more secure using credit cards at some places than your debit cards .

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Timmy February 18, 2013 at 5:45 pm

if your ATM card only have 100 pesos. Can you still use your card in buying some goods at the grocery.

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asen June 7, 2013 at 5:11 am

The actual “available balance” would be considered; the purchase should not exceed 10000 centavos.

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