A debit and credit card may look the same, but they offer very different services. One takes money directly out of your bank account at the point of purchase. The other sends you a bill at the end of the month to pay for your transactions. If you’re a Millennial who grew up during the Great Recession or someone else who’s struggled with debt, a debit card may be your first choice for payment.
But overall, Americans increasingly prefer credit cards to debit cards. In 2016, credit cards for the first time surpassed debit cards as the favored payment method, according to the TSYS 2016 U.S. Consumer Payment Study. Forty percent of respondents chose credit cards as their most preferred payment type, compared to 35% who chose debit cards.
That makes sense from a security perspective. While debit cards have the advantage of preventing you from going into debt, they don’t compare to credit cards when it comes to safety. Here’s why.
More Types of Credit Card Transactions Are Protected by Law
Credit card users are much better protected by law. The Fair Credit Billing Act (FCBA) allows you to dispute not only fraudulent charges on your account, but also charges that are the result of merchant error. You can even dispute authorized charges and temporarily withhold payments — without harm to your credit score — if you are unsatisfied with the goods or services you purchased and the merchant won’t refund your money. (The goods must be worth $50 or more and have been bought within 100 miles of your home in order to qualify for this protection.)
In contrast, debit cards are protected by the Electronic Fund Transfer Act, which doesn’t cover disputes on authorized charges to your debit card, just unauthorized charges. (See also: Why Millennials Should Embrace Credit Cards)
Credit Cards Users Enjoy a More Generous Dispute Window
Legally, you’ve got more time to dispute a credit card charge than a debit card charge. The FCBA caps your liability at $50 as long as you dispute the transaction within 60 days of the date your billing statement was mailed to you. And there’s no time limit for disputes if your credit card was included in a security breach.
With debit cards, your liability is also legally limited to $50, but only if you report the billing error within two business days of the transaction. The liability cap goes up to $500 if you report the mistake within 60 days, and you may not have any protections at all if you wait longer than that.
Fraudulent Credit Card Charges Don’t Have an Immediate Impact
Should a criminal make an unauthorized charge or a vendor accidentally charge you the wrong amount on your debit card, your bank account will be immediately affected until you can resolve the problem. That’s not so for a credit card. An accidental or fraudulent charge on your credit card will affect your available credit until you dispute it, but unlike a charge made on your debit card, it won’t affect your ability to pay bills from your bank account. (See also: 7 Reasons I Use My Credit Card for Everything)
Credit Cards Protect Your Purchases Better Than Debit Cards
Credit cards often come with one or all of the following protective benefits on purchases.
If your purchase is stolen or accidentally damaged, this benefit can replace or repair it, or reimburse you for its cost. Policies vary, but some cover you for up to $10,000. (See also: How Credit Cards Protect Your Purchases From Damage or Theft)
Most credit cards offer an extended warranty policy that can add up to two years to the manufacturer’s warranty of covered items. (See also: How Free Extended Warranty Works on Credit Cards)
There are times when you want to return a purchase, but the retailer will not accept it. Credit cards that offer a return protection policy may issue you a refund if you contact them within 90 days of the purchase.
It’s extremely rare to find a debit card that offers you any of these benefits. (See also: Credit Cards vs. Debit Cards: A Comprehensive Comparison)