Many people find it convenient to use credit or debit cards rather than carry cash or write checks for each purchase. Recent headlines concerning account information breaches should be of concern to card users.
Important differences between credit cards and debit cards may affect your decision about which to use for your purchases. Keeping these differences in mind when making purchases might help you protect your money if your accounts are hacked. Debit cards act like an electronic checkbook. When you use a debit card, money you have in your bank account is immediately “debited” and transferred to the merchant where you used the card. When you use a debit card, you are granting access directly to YOUR money in YOUR account.
Credit cards draw the bank’s money from a line of credit the issuing bank has granted to you. In other words, when you use your credit card, you are taking a loan of the bank’s money – and the merchant (or cybercriminal) does not have access to YOUR money.
Another significant difference between these two types of cards is that debit cards may allow only two days after a fraudulent debit has been taken from your account for you to challenge that debit, while the time to challenge fraudulent credit card charges is more generous.
You can tell the difference between the two types of cards by how you use them. If you need to enter a personal identification number (PIN), the card is a debit card.
While it is bad enough to have a credit card account hacked, at least you still have your money available to you while you fight the fraudulent charges. However, when it is YOUR money that is stolen when using a debit card, you no longer have access to that money while you fight the debit from your account.
The Federal Deposit Insurance Corporation, the government agency that insures deposits to banks and thrifts, offers a more detailed explanation of the differences between debit and credit cards, as well as a helpful chart describing the two types of cards. Banking cards with microchip technology do not solve all potential problems, and consumers should remain vigilant.
To protect yourself, find additional information and tips from Cincinnati Insurance’s cyber-crime prevention partner, CyberScout.
This loss control information is advisory only. The author assumes no responsibility for management or control of loss control activities. Not all exposures are identified in this article. Contact your local, independent insurance agent for coverage advice and loss control services.