When The Cashier Asks “Credit or Debit?”

When checking out at a store, a lot of people whip out their debit, or check, card. When we make payments with a debit card, we are often asked which type of transaction we’d like to make. The obvious affect is that if we choose debit, we have the ability to get cash back, but what are the differences between choosing “credit” or “debit” at the point of sale?

Either way, the funds come from the cardholder’s checking account, so the vast majority of people feel that there is no difference. However, there definitely is a difference and maybe you’ll think twice next time the cashier asks. Debit and credit transactions use two completely different processes using two different networks, and the consequences can be quite large.

When a cardholder chooses “debit” at the register, the transaction is processed immediately. When the cardholder authenticates the purchase using his PIN, the funds are immediately transferred from the cardholder’s account to the merchant’s account.

When a cardholder chooses “credit,” the transaction is processed offline. The merchant may process the card to receive an authorization, thereby guaranteeing that the amount requested will be paid. However, like a normal credit card transaction, the amount is not immediately withdrawn from the cardholder’s account. This doesn’t happen until the merchant settles all of its credit card transactions, at which time the purchase amount is charged to the cardholder’s checking account. This can take up to a few days.

Debit card transactions go through an Electronic Funds Transfer system such as STAR, which doesn’t offer the protection offered by VISA or Mastercard. “Debit” transactions can be disputed, but the process is much more lengthy and time-consuming. And if you don’t report your lost card in time, it could cost you big time.

In contrast, credit transactions go through the credit network, such as VISA or MasterCard, and therefore come with the additional security credit card companies offer.

Whereas credit card purchases are governed by the Fair Credit Billing Act (which basically means you have zero liability for fraudulent purchases, poor-quality or damaged merchandise, or for merchandise that was never delivered), debit card transactions are determined by the financial institution that issued your card. And we all know how much of a pain they can be to deal with.

Another difference is that when you sign for a credit transaction, banks get a much larger percentage fee from the merchant. So it may not make much of a difference to you in a transaction, but you better believe that the extra costs trickle down to you.

Readers, now that you know, will you choose “debit” or “credit” the next time the cashier asks?

Image from stevegarfield

When The Cashier Asks “Credit or Debit?”

Sweating the Big Stuff

11 thoughts on “When The Cashier Asks “Credit or Debit?”

  1. Thank you for sharing this information; I was not aware this is the way transactions were handled with a debit card. I definitely thing I will be using mine as credit from now on-the added protection is definitely a bonus!
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  2. I didn’t know all these details on the debit card either. I never use my debit card for anything other than the ATM machine thought because I love the rewards I get from my credit card. (Meaning cash rebates, airline miles)

    1. @Everyday Tips, I also use my credit card exclusively other than ATM withdrawals. Why not earn those points, even if 1% of $3 is just 3 cents? It also helps so that I onlt have to make one large withdrawal from my checking account to pay the credit card instead of see it slowly dwindle over the course of the month.

  3. I use my debit card as credit on most transactions since I earn points this way. I then use my points for gas cards. I save quite a bit of money on gas throughout the year because I rack up so many points. It’s good to hear that I also have more coverage using it this way. Thanks for that info!

  4. I actually knew about the cost aspect of it because I asked once so if it is a small merchant (like a pizza place or similar establishment) I will always say debit just to keep their costs low.

    1. I wonder about the issue of merchant cost. I asked a local merchant, and he said the charge was the same to him for credit or debit from a bank card. Is there a difference between these cards and regular credit cards (American Express, Visa, MC, not tied to a checking account)?


  5. I really don’t know a lot about this stuff… how do I get points and miles by using a credit card? Do I have to pick a certain card or something? I pretty much only use my debit card as debit, just cause I like that it takes money out immediately so I always know how much I have in my account… what credit card should I be using??

    1. Great question! Yes, you have to sign up for a card that offers cashback or miles. Most offer around 1% so you won’t see much unless you are spending a signiicant amount of money each month. If that’s the case, your system works fine because there are no real savings or earnings to be had.

  6. I always choose credit. But I have Wachovia’s Way2Save program. Every time I use Credit, and extra $1 comes out of my bank account into a savings account…. Such an easy way to save!

  7. Even though we have credit cards in the UK, we don’t have this strange debit/checking/credit bank system you guys have. The first time I used a US ATM I was speechless.

    On the other hand, I’d always use a credit card. Effectively it’s free money for 30-56 days.

    Provided you pay it off every month in full, then what’s not to like about free money? :)

  8. I always use credit mainly because I hate the idea of typing in my PIN all the time (paranoid!). I realize this costs the store extra. I rarely use my credit/debit card if I am buying something less than $10, even if the store doesn’t have a minimum.

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