Debit and credit cards are often used interchangeably for making purchases. There are differences however, and if you can use credit responsibly, there are significant advantages to making a purchase using a credit card vs. making the same purchase with a debit card:
Recent changes in legislation have significantly reduced the fees merchants can be charged for purchases made via debit cards. As debit cards are no longer as profitable for their issuers as they once were, the reward programs offered on debit cards have been significantly reduced. Many credit cards still offer generous reward programs however, the most popular of which are:
A cash back rewards credit card gives you back a percentage of the purchases you make using the card. Generally you get around 1% cash back on everyday purchases, and a higher rate for purchases of select goods and services such as groceries and/or gas. For a list of top cash back cards click here.
A travel rewards card gives you a certain number of airline miles, or points per dollar spent which can be used for free travel. For a list of popular travel reward cards click here.
By law your maximum liability for fraudulent charges made on a credit card is $50, and once you have reported a card lost or stolen you cannot be held liable for any charges. Fraud protection on debit cards varies by the issuer of the card. You may have a $500 liability on your debit card even if you report your card stolen within 48 hours of the activity occurring. This combined with the potential that you will have to go without the money in your checking account while your debit fraud claim is pending, makes credit cards the superior choice for fraud conscious consumers as well.
When you pay using your credit card, the Fair Credit Billing Act protects you if a charge is in dispute. If you are not satisfied with a purchase, your card issuer can legally withhold payment from the organization that sold the goods or service to you. While the dispute is being resolved, you are not charged. Had you made payment using a debit card, any money going out of your account would be more difficult, perhaps even impossible, to recover.
Additional benefits offered by many credit cards include free travel insurance when you pay for vacations with your credit card, or extended warranties when buying electronics or renting a car. Indeed, some car rental companies will only rent vehicles to credit card holders and not to debit card holders.