Credit or Debit Sir?

Posted on 15. Feb, 2006 by in Saving & Investing

You’ve most likely been asked this question every time you swipe your plastic but did you know that it actually makes a difference?

The Witchita Eagle reported this week that more and more banks are offering rewards programs to encourage customers to have their debit card swiped as a credit card. Why? More money for the banks fo course.

Local merchants pay a fee for every card transaction they process, and the fees for signature transactions and PIN transactions are different because merchants typically pay more for signature transactions, which are processed on the same networks as credit cards.

That fee — invisible to you — varies greatly, but is typically 1 percent to 2 percent of the sale total, according to Federal Reserve research. Some of that fee goes to your bank.

Contrast that with a PIN debit transaction. These transactions are handled on more direct networks, the same ones that connect ATMs to banks. Typically, these networks’ fees are cheaper — on a $50 transaction, the average fee is about a third lower than a signature transaction, according to the Federal Reserve.

Some of that fee also flows to your bank, but it’s much less.

One good thing that comes from such behavior is that by signing your check or debit card transactions, they are usually protected like a credit card and your credit card company will likely cover fraudulent or incorrect charges.

Check with your bank to see if they offer rewards programs for swiping your card as a credit card – you could earn a $5 Starbucks gift certificate by the end of the month – just for spending money!

Credit Card, Debit Card, Rewards Program, PIN, Banks

3 Responses to “Credit or Debit Sir?”

  1. Adam Connor

    16. Feb, 2006

    I’ve also heard/read that some (if not all) banks will issue a POS charge when a card is used as debit. Is this true?

  2. Jason

    16. Feb, 2006

    For the most part, no. Although in some countries banks charge annual fees for debit cards. But, to the best of my knowledge and according to my experience most major banks will not charge you for debit card purchases.

    However, merchants may charge you an additional $.50 or so to cover the cost THEY have to pay.

  3. Chris Trygstad

    20. Feb, 2006

    I have a debit card, and I always specify it as credit. I have got burned a few times by “out-of-network” ATM surcharges, by specifying my card as a debit card.

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