A reader wants to know why Chase is pushing him so hard to use his debit card like a credit card when paying for things—they’re promoting a contest for people who do this, and on every insert or blank space in the paperwork that accompanied his newest card, they encourage him to always select “credit” over “debit” at checkout. Why?
To make more money, of course. Only this time, it’s from merchants, not you.
First we need to clarify something: just because you select “credit” and sign with your debit card, you’re not really making a credit card purchase. The money is still drafted from your account directly, it just takes a little longer. This method of using your debit card is called a signature debit, and it’s cleared via a different network than when you pay by punching in your PIN (which, logically, is called a pin debit).
Merchants have to pay more money for signature debit transactions than for pin debit ones. It’s in the card issuer’s interest to get you to use the debit card in the way that will generate the highest fees. If you’re going to pay with debit anyway, it’s cheaper on the merchant if you go the pin route.
Remember, though, that paying with a real credit card conveys certain benefits. It may give you more protection in terms of disputes or extended warranties, and in cases where the merchant places a hold—hotels and car rentals, for example—a real credit card will prevent your checking funds from being frozen indefinitely. Your bank may in fact extend those benefits to any signature debit transactions on your debit card, but you’ll have to contact your bank to find out.
(Thanks to Travis!)
(Photo: Travis Hornung)
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For those of us who actually try to support our local economies by shopping at small/local/mom & pop businesses, using debit is another way to help out. My loyalties are to my friends and neighbor’s businesses- not to Visa, Amex or Citybank.
A long time ago I used to used Debit at the store. This changed around the time banks started charging ATM fees.
The idea here is when you use your card as a debit at the store instead of the store paying a fee for the transaction to Visa or Mastercard, you pay a fee. somewhere between 1.50 to 3.00 a transaction.
Basically its the same as going off your banks ATM network. You will be charged they want to make money off you.
It used to also be a fact you could ask the store to add $20 to the transaction total and give you the difference back, I don’t see that happen to much anymore.
The best way to pay is cash if you want to save you and the place you do business with money.
I’m not sure if this is still the case, but I used to get charged, typically 25 cents or so, if I chose “debit” for the type of transaction. So I began choosing “credit” exclusively. I know this is more costly for the merchant. And I don’t care. The merchant is saved the cost of processing a paper check and waiting longer for the money. The merchant is spared the cost of bad checks. And the bank is spared the cost of processing paper checks as well. And yet I’m being charged for the improved efficiency and reduced loss? Nope. Not me. Until each and every merchant “gets it” that it is in their best interest to not assay a fee for a “debit” transaction, there will be no pushing of the “debit” button by me.
@twritersf: The small business is offering you a service. If they don’t charge you the fee, they will lose money on the transaction. How much do you think they’re making on your purchase of soda and candy if they have to pay 60 cents to process the transaction? There are very few if any small businesses/stores that will accept your check, so that’s a very weak argument. Just as easily as you can refuse the debit charge, the merchant can as easily refuse your sale.
I actually work for an issuer of credit cards and I will tell you that yes, we do earn more interchange on signature debit than PIN transactions. But it still makes more sense to sign as you do actually receive the same Zero Liability protection against fraud on your debit card if you sign (it’s based upon the network it goes through, if you sign it goes through the Visa network and therefore they offer their protections on it). If you use a PIN or if it goes through automatically because it’s under $25, you don’t have those protections. We do not charge our debit cardholders for using their PIN at point of sale but I do know some issuers do. All in all, you really do get more protections if you sign for a purchase.
I got into the habit of going with credit transactions because my main check/debit card was charging me a $0.25 terminal fee. They may have stopped, but I haven’t bothered to gamble the quarter to see.
The ‘fee’ to use debit card per transaction is not new.
Back in the early 90s when I had my first apartment, my Fleet Debit Card charged $0.25 for every debit transaction. And while I hated it, I hated writing a check for every little purchase even more. Eventually they got rid of the fee, and then I got rid of them… Then they bought the bank I switched to and that why I am at BoA now… Talk about fees.
The problem with processing debit as credit is the amount of money they block of for the transaction.
I know every here is a financial guru, but some us here do live paycheck to paycheck. Namely me. So when gas was $3.25-$4.00 per gallon, maybe that $58.00 fill-up I did gets $75.00 frozen in my account? Perhaps $100.00, what then, if the money is needed for some reason.
That $42.00 might be needed for pediatric co-pay which then bounces because the last money in my account is frozen? So, that’s $35.00 for an overdraft and then possibly another $10 for a transfer charge even when I have the money in saving to cover it?
No way. I know there are ways to combat it (and these fees), but if even paper checks are instantly verified- how come an electronic debit as credit needs 3-day freeze.
Just another way to screw us.
Maybe this has already been addressed but I didn’t read all the comments. I was under the impression that if you used your card as a debit card (with a PIN) that you could be charged a fee like an ATM fee. Maybe they used to do this and I am just old. But I know there was a time when my debit card received rebates when being used as a credit card from my bank. I don’t know if that has changed but I have always used my debit card as credit for fear that I would be charged an ATM type fee. I have had my bank card declined when being used as a credit card if the funds aren’t in the bank, although that hasn’t happened in years so that could have changed, too.
I use the signature debit transactions because my bank, Capital One, donates a percentage of the amount to the JDRF. Hopefully this will one day benefit my son since he was diagnosed with type 1 diabetes when he was four. If you’re interested just pick the debit card with the JDRF logo.
If that wasn’t available, I’d still make signature transactions to keep losers from getting my PIN.
just pay with cash.
When I buy from the bigger stores I use the signature debit method. When I buy from the Mom and Pop stores I use the pin debit method. I figure that helps the lenders desires for higher fees and gives a bit more to the little guys.
Debit cards are incredibly convenient and I figure throwing some higher fees to that network helps to keep them afloat…
I kept on wondering why the opposite. Why are companies like IKEA suggesting that you use your bank card for debit instead of credit.
I’m not sure this is true. I use my debit card in credit mode all the time and have been able to call up mastercard and do chargebacks, etc. Seems like if it goes through their network, I’m covered by their policies.
@sam-i-am: What I mean is – if their logo is on the card, then there shouldn’t be any reason why you wouldn’t be covered.
Whenever someone tells me it doesn’t matter if they do either or when selecting debit or credit, I tell them its cheaper for us to go with debit instead of credit.
I prefer using as signature debit because my bank has a point reward system. I hate shopping at places like Safeway, Giant, Bloom and other stores that when you click on Credit, and swipe your card it asks for your pin, then you must click cancel, then credit again and then sign. There are some stores that do not do this. Wegmans, Trader Joes, and a few others that allow you to use it the way you want to use it. If it was not for the point reward system I would have no problem using as a pin transaction. But especially in todays economy, any sort of benefit and perk you can get to get free stuff, I am all for it.