If you monitor your credit card account online, you might have seen a mysterious $1 charge pop up after you use your card to buy gas. These charges are only temporary and won't appear on your monthly statement. A brief look at the differences between using a credit card in a store and using one at a gas station shows where these $1 charges come from.
Since the gas station does not know how much you'll spend until you finish pumping your gas, it charges $1 as a preauthorization to check the card is valid. This temporary hold later gets replaced with your actual fuel charge.
Using a Card in a Store
Say you're using your credit card in a retail store. You select the items you want to buy and take them to a register, where a store employee rings you up. In a typical credit card transaction, your card information and the purchase amount are submitted to the credit card company electronically. If the card company approves the sale, you take your items and go, and the charge shows up on your statement. But the card company will decline the sale if, for example, the card is invalid or it's over its limit. In that case, you either come up with another form of payment, or you leave your items behind.
Using a Card at the Pump
Now imagine you're using your credit card at a gas station. The gas station can't submit your purchase to the card company for approval until it knows how much the charge will be. But it won't know how much the charge will be until you've actually pumped your gas. At that point, it's really too late to decline the transaction. The gas is already in your tank, and it's not like the station is going to pump it back out. So the gas station needs a way to verify that your credit card is good before you start pumping. That's where the $1 charge comes in.
The $1 Hold Solution
Before you start pumping gas, you insert your credit card at the pump, or you give it to the attendant. At that point, the gas station submits a temporary preauthorization to the credit card company for $1. If the card is good, the card company approves the $1 charge, and then you can pump your gas. The gas station will send the card company the final charge, which replaces the $1 preauthorized charge on your statement. If you want to total amount to come off your card immediately, you'll need to go inside and tell the cashier how much you intend to purchase and let him charge the card.
Debit Card Holds
If you use a debit card at the gas pump rather than a credit card, you might encounter not only a $1 preauthorization charge but also a "hold" that ties up some of the funds in your bank account. When a preauthorization on a debit card comes in from a gas station, banks recognize that it will soon be followed by a "real" charge for the actual gas purchase. Some banks respond by placing a temporary hold on $50, $100 or some other amount in the account linked to the debit card. The hold ensures that when the real charge comes in, there will be enough money in the account to pay it.