Understanding what they are and when to use them.
Putting something on “plastic” used to mean one thing—using your credit card. But these days, debit cards are also a big part of the “plastic” world. Do you know the differences and which one is better for you?
You can pay now or later.
- When you use your debit card, you’re withdrawing money directly from your checking or savings account by making the purchase.
- When you use a credit card, you’re accessing a line of credit from the bank or organization that issued your card. Each purchase is essentially a loan that you repay later.
Debit cards: Two ways to use yours.
When you shop with your debit card, you’re often asked, “debit or credit?” Here are the differences:
Debit: You need to use your PIN (personal identification number) to complete the transaction. The debit option can be used at ATMs and with merchants who accept debit cards.
Use this option when you:
- Want cash back with a purchase
- Withdraw cash from an ATM
Managing Credit Tip #3
Can't pay your whole credit card balance each month? Try to pay at least more than the minimum payment. Your balance will go down and you'll pay less interest over time than if you just paid your minimum payment.
Credit: You’ll need to sign a receipt like you do with a credit card. But, unlike a credit card purchase, the money is withdrawn directly from your account—it is not a loan. The credit option can usually be used if your debit card has a Visa® or MasterCard® logo.
Use this option for:
- Most purchases since it may give you extra fraud protection and rewards
- Purchases at merchants that don’t allow an additional cash back withdrawal.
It all comes from the same place. Whether you use the debit or credit option, all purchases made with your debit card are withdrawn directly from your account.
Note: Since merchants often pay a higher fee for credit transactions, many prefer you use the debit option. But, with the debit option, you could be missing out on rewards and additional fraud protection that come with the credit option.
What’s great:
- Convenience: You don’t need to carry cash or write checks. Plus more cash-only retailers now also accept debit cards.
- Help avoid interest charges: When you pay with available funds in your account, you’ll avoid the interest that can come with buying on credit. If you’re trying to get out of debt—or avoid getting into it—a debit card can be a good way to go.
What’s not:
- Overdraft fees: You have to be careful not to spend more than is in your account.
- Security: Keep in mind that there may be differences in fraud protection features of debit cards and credit cards, particularly because debit card purchases are withdrawn directly from your checking or savings account.
- Caution: You’ll need to safeguard your debit card as carefully as your cash. If your card is lost or stolen, report it to your bank immediately to help prevent unauthorized access to your checking or savings account.
Credit cards: When to use yours.
A credit card only offers the credit option-a loan you’ll pay back in the future.
What’s great:
- Financial flexibility: You can make a large purchase, consolidate debt or get emergency funds and pay for them over time, in payments that fit your budget.
- Rewards: You can often earn rewards on purchases when you use a credit card that offers a rewards program.
- Security: This is safest way to shop online since credit cards have stricter limits to fraud liability. Some credit cards also offer purchase protection or extended warranty protection on most of what you buy, online or off.
What’s not:
- Too much debt: Be conscious of what you’re spending—and the fact that you’ll have to pay it back—so you don’t get into more debt than you’re comfortable with.
- Interest and fees: Keep in mind that, if you don’t pay your bill in full every month, you’ll be charged interest.
Take action now.
Only you can decide whether debit or credit cards (or a combination of both) are the best choice for your life and financial priorities. There are advantages and disadvantages to each. Now that you understand the differences, you can make a more informed choice.
What's next? Basic facts about credit card rates
Some accounts and services, and the fees that apply to them, vary from state to state. Please review the information for your state in the Personal Schedule of Fees (at www.bankofamerica.com/feesataglance or at your local Banking Center) and in the Online Banking Service Agreement at www.bankofamerica.com/serviceagreement.
