Will That Be Credit Or Debit?

When shopping, we are often faced with the question: “Credit or debit?”.

Debit and credit transactions are processed differently: When you use a debit card and your PIN (personal identification number), the transaction is completed in real time, also known as an online transaction — you authorize the purchase with your PIN and the money is immediately transferred from your bank account to the merchant.

With a credit card, or using a debit card as credit, it’s an offline transaction.The funds for offline transactions are deducted after the merchant settles the purchase with the credit card processor and typically take 2-3 days to be reflected in your account balance.

Issuers used to charge merchants different fees for accepting credit cards. Before the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed, the cap was set at 21¢, much lower than the previous average of 45¢ per transaction.

With the cap on interchange fees, banks saw their revenue source for things like debit card rewards and free banking dry up, which is why you’re unlikely to find those things these days.

So, Should You Choose Debit or Credit?

Credit cards and debit cards are very different products, each with their own advantages and drawbacks that should influence when and how you use them. As for hitting the “credit” button when you’re using a debit card: It doesn’t really matter.

Other than the changes banks may have made as a result changing interchange fees, choosing to use a debit card as credit doesn’t really impact you. Running a debit card as an offline transaction still ends up doing the same thing — taking money from your checking account — and it doesn’t help you build credit, like using a credit card does. It may just give you an extra day to make sure your purchase is covered in your bank.