Debit cards and credit cards may look the same in your hand, but they are subject to different rules and tend to offer different benefits and liability protections for consumers.
Credit for perks
With credit cards, the cardholder is legally responsible for no more than $50, and issuers often take full responsibility for unauthorized purchases. Credit-card companies are also required to investigate a billing dispute reported by a cardholder and to withhold a merchant payment until the issue is resolved.
Credit cards may also offer rewards programs and purchase protection for damaged or stolen items — and they typically include rental car coverage. Thus, it may be advantageous to use a credit card for travel reservations and other big-ticket purchases, especially if you pay off the balance before it begins to accrue interest.
Debit for discipline
With debit cards tied to checking accounts, a consumer could be liable for up to $50 for losses or thefts reported within two days. The potential liability rises to $500 for problems reported within 60 days and may be unlimited thereafter, but many banks refund fraudulent charges if problems are reported promptly. A credit-card company’s zero-liability protections may be extended for signature transactions on their branded debit cards.
Debit cards can be helpful for people who want to track everyday expenses such as groceries, utilities, and gas for budgeting purposes, but users should watch accounts closely for signs of fraudulent activity and to help avoid costly overdraft fees.
Source: Kiplinger’s Personal Finance, August 2013
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