I overheard a conversation at customer service at my financial institution as I was standing in line for the teller. Someone had an issue with their debit card.
The cause was a $96 hold from a gas station. The customer service rep then said that they recommend that customers choose the “credit” option rather than the “debit” option, if they're offered it. (Apparently this person chose the “debit” option.)
From the consumer's standpoint, it's usually a better idea to choose the “credit” option — especially if they don't need to use “debit” because they want cash back. Choosing “credit” doesn't magically turn your debit card into a credit card, though. The money still comes out of your checking account fairly quickly.
Consider these:
- The hold amount is usually less, or just the amount of the purchase. The gas station can freeze a fairly large chunk of money with a “debit” transaction, for up to three business days. Not so with a “credit” transaction.
- As a result, there's less chance of overdrawing your account due to a large hold. If you're going close to the wire, it's easier to go over even if you keep track of your charges carefully. Sometimes there's no clear indication that the money is being held!
- “Credit” purchases are more likely to qualify for rewards. The merchant pays a heftier fee for the “credit” transactions because they're signature transactions. This means that there's more for the bank to share back with you (if those are the terms and conditions of your debit card, of course).
- There's usually more protection afforded by “credit” transactions. These kinds of transactions can be “charged back” just as if they were made on a credit card. (Visa and Mastercard offer this protection.) If the “debit” option is used then it's still possible to get your money back, but you get it only if the merchant is found to be at fault. With the “credit” option, you get the money back first while the investigation happens.
The bottom line is that you always need to know how much is in your checking account — but choosing the “credit” option tips the odds in your favor a bit by reducing the cushion that you need to plan for.
I always use credit. I never knew that a debit card would have a hold on m y account.