Credit or debit?

Okay, can someone please explain to me the difference between pocessing my check card as a credit or debit transaction? I feeli like I should know this, but don’t.

It might vary from bank to bank, but in general in the US, debit transactions are immediately deducted from the account, end of story. When processed as a crdeit card, however, the bank places a hold on the account for the amount authorized, which reduces the available balance by that amount. This hold is released in a few days, but if the with whom the transaction was processed hasn’t submitted the transaction for payment, the money will show as available. As soon as the transaction is submitted, it will be deducted. If you rely on the online account balance to determine if you have enough for a given transaction, you can get into trouble this way.

I just started accepting debit/credit cards at my business and one of the things I was told is that the shop pays less on a debit transaction than a credit transaction. So that’s a good one.

The liability structures are slightly different, too:

Q.E.D., I was about to question your post when I realized that you used the term “account” to mean two different kinds of accounts. Tell me if this is correct:

Debit card transaction – the money is instantly deducted from your bank account.

Credit card transaction – a hold is placed on your credit card account, which is not a direct source of money but an accounting entry that will eventually result in a bill being sent or an automatic deduction from a bank account in the future.

No, I meant the one account that the debit card is tied to. Usually a checking account. When you use your card with the PIN, it’s processed as a debit transaction. However, if you use it without the PIN, with or without a signature, it’s processed as a credit card and the hold is placed on your checking account, as outlined in my earlier post.

Whenever I used my check card (which could go either way) I’d just pick credit so I wouldn’t have to input a PIN.

My bank charges me $0.50 for a debit transaction while credit transactions are free.

If you purchase something for between £100 and £30,000 and use a credit card, you’re covered by the Consumer Credit Act which means that the credit card supplier (e.g. Mastercard) is jointly liable.

This is true for transactions above a certain amount. Merchants get charged a flat fee for debit transactions (say 65 cents), but they pay a smaller flat fee plus a percentage of the transaction amount for credit transactions (say 20 cents plus 1.7% of the amount). The tipping point where debit becomes cheaper for the merchant is usually in the neighborhood of $25 or so.

You can overdraft your checking account by using its debit card as credit if you lack funds because your transaction will still go through. I have had bank officials tell me this is to ‘save me the embarassment’ of having a card rejected. If you tried to make that purchase by using the debit method the sale will not go through if the money ain’t there.

It’s up to you. I don’t personally like spending $29 in NSF charges to get a pack of gum because my account went screwy and the credit charge went through, but that’s just me. Also, if your identity is stolen and the thief uses your debit card as a credit card, the bank almost surely will not help you like American Express or Visa or MC would. You will lose every penny unless either the merchant or the bank are feeling extremely sympathetic.

Bolding mine.

I’m not familiar with a combined debit / credit card. I don’t believe that they’re available in Canada. I might be wrong on that. I have debit card and credit cards, but not one card for both.

I don’t understand the appeal of the credit system as you’ve described it.

Where’s the “credit” in the credit card if your liquidity is immediately reduced by the amount of the transaction?

To me, a credit card transaction preserves my current cash and results in a debt to be settled in the future.

It’s not a credit card, and there is no credit account associated with it. It is a debit card with a Visa or Mastercard logo which can be processed like a credit card. But in and of itself, it does not give you any credit.

Ah, thank you for explaining this. It explains the occasional customer I get who, baffled and increasingly furious, trudges back and forth from my register, which is beeping a “Do Not Accept” for his purchase, to the ATM six feet away, which is telling him he does SO have X amount of money in there.

Just a couple, minor nitpicks. First, if you **credit card **was stolen and the thief used the card, you would be liable (well possibly). If your identity was stolen, the thief would most likely get a credit card that you would not know about. Either way, anytime I have lost accountability of my wallet or credit cards, I immediately contact the bank and cancel the cards. Yeah, it’s a bitch waiting the day or so for the replacement cards to come in, but the cards cannot be used. I know this because I usually find the lost card about 10 min after I hang up with the bank.

Also, overdraft protection keeps away those pesky NSF charges.

SSG Schwartz

Only for, at most, the first $50. That’s the maximum liability set by federal law. I believe it applies equally to both credit and Visa/MC-branded debit cards. However, most banks will go that one better with zero liability. This, provided you notify the bank of the fraudulent charges within a stated period of time, which varies from bank to bank, but is typically 30 days.

Thanks for the clarification. I wasn’t 100% on the amounts and limits and a guess did not seem like a good idea.

SSG Schwartz

The “appeal” is this: you don’t have to be able to qualify for “credit” to be able to use a card to make payments for goods. Not only that, but you don’t have to run up a debt to make such payments, either.

In the 80’s, as the spread of cards that could be used to access ATMs proceeded, people began to think of ways to link such cards to point of sale machines. There are some sizeable concerns. First of all, you don’t want a whole bunch of competing systems out there; a merchant would prefer to have a limited number of systems involved in processing payments. Second of all, many smaller banks cannot afford to put in a dedicated system that is specific to themselves, so they need to band together in some fashion to provide such a service. Thirdly, such a system has to be accessable from a wide geographic area.

Initially, banks began to band together to provide networks of debiting systems. I think one was called the Star network, which I believe still exists. They reached agreements with large companies willing to install point of sale card readers. ARCO gasoline stations in California were one of the first to offer such services. The readers had to be accessible to the customer, because the customer has to enter the PIN linked to the account the card draws from to validate the transaction. Since the bank ATM networks tended to be regional, a national company would have to reach agreement with multiple networks.

Enter the VISA Check Card. VISA figured out that it had most of what was needed to run a debit card system already in place. It had point of sale machines, it had a nation-wide (worldwide, actually) system, and many banks were linked to VISA already, in order to be able to offer their customers bank-branded credit accounts. So VISA devised a system whereby the bank would issue to its customers a special form of debit card: a card that not only accessed the ATMs and debit POS systems of the bank but also the credit processing system of VISA. MasterCard followed very quickly with their own version. Because the systems were already in place, and because the two companies are huge and already advertise substantially, the concept quickly outpaced the competing debit card systems.

For a while, you could get both types of cards from your bank. Even as recently as 2000, Fifth Third Bank gave to me both a straight ATM card, useable as a debit card through the JEANNIE system (and any linked systems), and a MasterCard logoed “Enhanced Jeannie” card. I believe that it is rare for banks to bother with the straight ATM card any more. The beauty of the system is that you aren’t required to have a credit account (so you don’t rack up any debt), the credit card companies know what your available balance is and can be pretty accurate about authorizing a transaction (though there are potential pitfalls, depending upon how the merchant processes the transaction and how your bank reports your “available balance”), and you don’t need to use a PIN, which speeds things up dramatically.

There are downsides. First of all, it isn’t a credit card, so you don’t get advanced credit. You have to have the money to spend it. Second of all, some transactions can really put a crimp on the old bank account for a time: car rentals, for example, often result in a hold substantially larger than the actual expected rental fee, which reduces your available balance accordingly while the hold is on (and the hold may not be lifted for a few days after the car is returned). Last three rentals I made, I was advised not to use a combination card to process by the company (Hertz) itself. Thirdly, as noted above, if you are not careful, you can overdraw your account. For example, some gas stations only process a $1 charge at the time of the sale, and in such cases, your bank account doesn’t get a hold on the balance for the whole amount; the account isn’t debited until VISA/MasterCard process the transaction through their system. So if you are not very careful, you can get into trouble. And this gets intensified if your bank has the usual and nasty habit of adding daily fees for overdrawn accounts.

I always use my card as a credit. Some businesses charge a fee on debit cards much like you are using an atm.

While contractural plans differ, I think you’ll find that your liability can be much greater w/ the loss/misuse of a debit card. Typically the loss notification period is much shorter, a few days vs. 30 days w/ a credit card.
I think debit cards offer far more benefits to the card issuer than the cardholder. I won’t have one.