Database Breach? Credit Is Safer Than Debit

by Miranda Marquit · 8 comments

Recently, there’s been a lot in the news about database security breaches. From Target to Michaels to Neiman Marcus, it seems like any major retailer could be the target of a database breach.

And, of course, that puts your information at risk.

A few years ago, one of my credit card numbers was stolen as a result of the PlayStation Network breach. Having your credit card number stolen is frustrating enough, but having your debit card information at risk is even worse.

That’s one of the reasons why I almost always use a credit card when I go shopping now, whether it’s online or in person.

Credit Cards Don’t Provide Direct Access to Your Bank Account

One of the reasons I like the idea of using credit cards for my shopping is that there’s no direct access to your bank account when you use a credit card. This means that if someone charges your card fraudulently, the money doesn’t come out of your bank account. Additionally, you can get the fraudulent charge erased from your credit card account in as little as 24 hours (although it can take longer).

With a debit card, you don’t have that extra layer between your bank account and the fraudster. When your debit card number is compromised, the fraudster has direct access to your bank account. Even if you notify your bank quickly, and prevent future problems, the reality is that it could take up to two weeks to get your money back.

And it really is your money accessed by the debit card, so that reduces your spending power during that time. If you have automatic withdrawals for your mortgage payment and other bills, you could run into serious problems by not having that money in your bank account.

Debit Protections Aren’t the Same

Banks that brand their debit cards with MasterCard and Visa tout $0 fraud liability, but the rules are a little different under the law. While some banks treat debit cards like credit cards in terms of liability, not all of them do. In fact, several banks adhere to the minimums imposed by law under the Electronic Fund Transfer Act.

For debit cards, your protections are as follows:

  • You’re liable for up to $50 if you notify the bank of the fraud within two days
  • If you report the fraud within 60 days after the statement is issued, you’re liable for up to $500
  • After 60 days, you can be liable for unlimited damages with a debit card
  • Some banks provide credit-card-like protections if you sign when you pay, but won’t provide the same protections if you use a PIN instead

It’s important that you read the fine print and double-check with your bank to get the actual policy on debit card protections against fraud — since under the law, protection for credit and debit cards isn’t the same.

Do you think debit or credit cards are safer? Does this post change your mind?

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  • Gaffer says:

    Studies have shown that people using Credit Cards for purchases spend close to 20% more than if cash or debit is used. I would rather self insure by using a debit card, saving 20% on overspending, and practice good PIN security. If the debit card is stolen, the bad guy has to hit credit since they dont know my PIN, and thus any transactions using credit have 0% liability on my part.

  • Great article! Personally I never pay for anything with my debit cards. I always use my credit cards to pay for things either online or offline. Credit cards are much safer to use because you can always dispute unauthorized charges before or after you pay your bills. It’s much harder to dispute debit card charges since money has already been deducted from your bank account. Debit cards should only be used for cash withdrawal at the ATMs.

  • Cyrus says:

    Unfortunately, this article continues to propagate the common myths about debit cards being less safe and secure than credit cards. If you use your Visa or Mastercard debit card properly through their system, meaning you sign for purchases and don’t enter your bank pin, they offer EXACTLY THE SAME PROTECTION as credit cards ( http://usa.visa.com/personal/security/zero-liability.jsp, http://www.mastercard.us/zero-liability.html). These companies will put fraudulently charged amounts back into your bank account as quickly as they would back into a credit card account. On the other hand, Entering your pin sends the transaction through the bank’s ATM network, as if you had gone to an ATM and withdrawn cash, which does carry some additional risk and is subject to the bank’s ATM liability policy instead of Visa/Mastercard’s policies. Most people aren’t aware of this difference and it’s unfortunate that most banks don’t explain this to new customers.
    As for a debit card being directly connected to a bank account, I’d rather give up the “buffer” of a credit card account and not complicate my financial life with monthly statements and the risk of overspending and racking up a balance. I check my bank balance many times each month and keep my own buffer of at least $1000 extra in the account so that normal monthly expenses rarely take the account below $1000.
    Debit cards can do everything a credit card can do, except get you into debt.

  • Jason says:

    We don’t hear much about the wise use of credit cards on personal finance blogs. Since paying off the last of my revolving debt 2-3 years ago, I’ve preferred credit precisely because it creates a buffer from your real money. It was very useful last year when I had a dispute with an insurance company about premiums paid in error. My bank refunded the payment right away, so I didn’t have to worry about making a $400 payment (or bearing interest on that amount) until the issue was resolved. Companies don’t like dealing with chargebacks, so having that extra leverage is useful at times.

  • Gary Kerr says:

    Really informative and awareness creating article on preferring the credit cards over debit cards. Really the information is good and learning worthy. The increase in the number of frauds every year is alarming us to use the credit cards so that we can keep the fraud people away from our money. Thanks.

  • I have a lock on the amount that can be charged on my card per day and week, all over must be made to my bank contact and double-checked. My bank manager knows me and can ask any questions that only he and I know the answers to. He has the right to stop my card immediately if it gets the wrong answer.

  • Mike D. says:

    Capital One 360 has a $0 Liability Guarantee.

  • So true. The only place I use my debit card is at Aldi. I just don’t trust using it anywhere else.

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