Editor’s Note: This is a recurring post, regularly updated with new information.
If you are just Start building your credit and explore credit card options, you may be familiar with swiping and inserting a debit card for your everyday purchases. You can even choose the “credit” option to skip entering the PIN at checkout. What’s the difference? Anyway, does the difference between debit and credit really matter? Absolute.
Debit cards do a great job of helping you with ATM withdrawals and deposits, but for any other activity, they can be better than collecting dust in your wallet. Let’s look at four reasons why you should avoid using your debit card.
Increase your fraud liability
Your debit and credit cards may look similar, but the law considers these two plastics very different in terms of your liability if thieves use them to spend lavishly.
Credit cards belonging to Fair Credit Payment Act, which limits your liability for unauthorized purchases to a maximum of $50. So if someone steals your number and makes thousands of dollars in your name, you won’t have to pay more than one Ulysses S. Grant.
However, debit cards are regulated by Electronic Money Transfer Actand fraud can be a much different — and more costly — story. If you come across unauthorized activity and report it within two business days, you’ll still keep your liability at $50. But if you don’t report it until after those two days, your liability increases to $500. Not notify your bank about it until more than 60 business days? You may owe the full amount (but hopefully you’re checking your account often enough to avoid this).
Data breaches and identity theft are not going away anytime soon. Ditch your debit card to make sure you won’t get in trouble if criminals withdraw money from your number. While you’re there, Do all you can to keep your credit card safealso.
Related: Credit Cards vs Debit Cards: Which is Smarter?
Keep your cash in a holding model
When you check in to a hotel room or get the keys to a rental car, using your debit card locks in your hard-earned money. Companies need to know that you can actually pay an amount higher than the price you set in advance.
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The hotel wants to know that you have enough money to pay for the items in the minibar or the tabs at the restaurant for which you charge for the room, and a car rental company wants to make sure it can charge you. you if you do not fill the tank. So they keep an extra amount on your card, which varies from company to company.
For example, at Marriott, you’ll see a hold for all room charges and resort fees plus a hold for incidentals — and that hold may not be released for up to five business days after payment. Hertz’s company policy states that debit cards will be charged “a reasonable amount to cover any costs incurred”. With credit cards, those holds are a pending charge on your line of credit — not your actual cash.
Related: 5 things you need to know about keeping debit and credit cards
Doesn’t give you travel benefits
Lost luggage, missed flights, inclement weather — there’s no shortage of things that can happen while you’re on the go. If you book your trip with a debit card, it’s your responsibility to deal with most of those disruptions. If you use a credit card with travel insuranceHowever, you will most likely be covered.
In addition to tackling challenges beyond your control, some cards can be your best friend in the worst-case scenario where you can make mistakes. A series of credit card covers primary rental car insurance that can help avoid paying extra for a policy or deal with the hassle of using your own insurance.
Related: The best credit cards with trip late chargeback
Does not help you accumulate rewards
It’s no secret that everyone at TPG is passionate about earning points and miles, and debit cards simply don’t pile up in the rewards game. Why? Because they don’t make the bank as much money as credit cards.
In 2010, part of the Dodd-Frank Act limited the amount banks could charge interchange fees for debit card transactions to approximately 21 cents per transaction. Credit cards, on the other hand, have a variety of behind-the-scenes fees. Those fees are part of the reason why banks offer such strong incentives for using your credit card.
bottom line
If you’re one of those Americans who’ve charged interest and credit card fees over the past year, a debit card can be an essential component of balancing your personal budget and avoiding finance charges.
If not, leave your debit card in your wallet and earn one instead refunds or travel rewards credit cards to better protect your money and earn rewards for your spending.
Related: How to transfer your spending from debit card to credit card
Additional reporting by Emily Thompson and David McMillin.
