Is your debit card safer than your credit card?

When it comes to their money and credit line, people want to know that they’re protected from fraud. Consumers are most vulnerable to fraud when making electronic payments (i.e. using a credit or debit card), which accounted for 62 percent of payment volume in 2009*. Debit and credit cards have become the payment methods of choice over cash because of their convenience, but which type of card is safest when it comes to protecting consumers from fraud?

The FTC requires that consumer liability for fraudulent charges made to their credit or debit accounts be limited to $50. However, VISA and MasterCard, which control 100 percent of the U.S. debit card market and the majority of the U.S. credit card market, have taken it one step further, requiring that all of their card issuers adhere to a zero percent liability policy for customers affected by fraud.

This means that whether you use a credit or debit card, you are equally protected and will receive a 100 percent refund on fraudulent charges made to your accounts. Since both your credit and debit card issuers are required to adhere to the same zero percent liability policy, you should feel equally comfortable when using either account, right? Not necessarily.

When you use your debit card, you’re risking direct access to your checking account. Someone making fraudulent charges to your debit card is stealing your actual money, making the logistics of a refund to your checking account a more difficult and nerve racking process.

As a victim of debit card fraud, you run the risk of bouncing important checks, such as your electric and water bill, or even your mortgage payment. Your cash flow for day-to-day expenses is cut off until the dispute is resolved with your bank. While you will get your money back eventually, you have to act fast.

Your credit account, on the other hand, exists on the basis of borrowed money. If someone makes fraudulent charges to your credit card, it has no direct effect on your cash flow for your day-to-day living expenses and you’re generally not responsible for the debt for 25-55 days.

For example, let’s say fraudulent charges are made to your credit card account 10 days before you receive your bill. Assuming that you don’t notice the charges until your printed bill comes in the mail, you have a minimum of 25 days to resolve the matter before your bill is due. However, if you’ve been a little more diligent by checking your account online, you will have an additional 10 days to resolve the dispute. Either way, with a credit card you should have enough time to detect, report, and resolve fraudulent charges before you become responsible for paying them.

These practical matters clearly make credit cards a more convenient payment method when it comes to fraud protection. However, if you have trouble handing your credit responsibly then credit cards remain an unfit choice.

* Source: CSCU, The Nilson Report, VISA

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About the Author: Odysseas Papadimitriou

Odysseas Papadimitriou is the founder and CEO of Card Hub, a website that helps consumers compare credit cards and gift cards.

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