When you have a debit card, you have a choice about how you want to use it. The cashier will ask, “Debit or credit?” when you present the card. You can answer either way, but it's important to keep in mind that if you answer "credit" this doesn’t mean your bank is lending you the money for the purchase.
Using Your Card as a Debit Card
When you run a transaction as a debit, you’re required to enter your personal identification number into a pad hooked up to the cash register. It’s an online transaction made directly between the merchant and your bank. Think of it as your money moving from Point A (your bank) straight to Point B, the merchant. The debit posts to your account almost immediately through special point of sale software. The debit usually shows up on your bank statement with the notation “POS” for point of sale.
Using Your Card as a Credit Card
When you choose credit, the cashier will ask for your signature on a sales slip instead of having you enter your PIN into the pad. Your signature acts as your authorization to the card processor -- often MasterCard or Visa -- to take the money out of your bank account. The transaction still debits your account, but it doesn’t usually happen right away. This is an offline transaction. Now there’s a middleman -- the store must deal with the card processor, such as Visa or MasterCard, to collect its money. A credit transaction goes from Point A to Point B -- the card processor -- then to Point C. This may take a day or two, possibly three. You must still have enough funds in the account to cover the purchase at the time you make it, however. The card processor isn’t lending you the money, either -- it comes out of your account eventually.
Using Your Card Online
When you use your card online, it’s more or less an automatic credit transaction. You usually don’t have the option of entering your PIN. That’s a good thing because the less information you share, the better. Bankrate says that using a debit card -- even as a credit card -- to make online purchases is risky. It means exposing your bank account information to unknown entities -- the unseen merchant on the other end of the transaction, anyone snooping on your wireless network or even a malware threat on your own computer. If you have a real credit card at your disposal rather than a debit card, you might do better to use that for Internet transactions because the only money at risk is the available balance on that card.
Pros and Cons
Since money comes out of the same bank account, it might seem like no big deal whether you run the transaction as a debit or use your card as a credit card. But choosing credit offers you more protection, even online. Most reputable card processors won’t hold you liable for unauthorized credit transactions. If you use the card as a debit card and fraud occurs, you’ll have to work out a solution with your bank and wait a while before you get your money back -- if you even do. Many card processors have zero liability policies in place. They treat your debit card just the same as a regular credit card when you make a credit transaction, so if an unauthorized charge is made, it will refund the money to you.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.