I’d like to switch to using only debit with PIN because I feel like I’m screwing over merchants to get reward points. Or just screwing over myself because I end up paying more at the register. Obviously my transactions are just a drop in bucket. I used to hate it when merchants would charge less for debit or cash transactions. Now I hope they start doing it more so I can benefit from going the debit route and so more people will follow suite so we can all benefit from lower register costs.

Now I never sign with my debit card and only use it for pin transactions. If I can’t punch in a number when buying something, I use my credit card, and pay for my credit card purchases asap.

Thanks for reading! When you open a regular checking or savings account with the credit/debit card, it does not become part of your credit report. It is not an actual credit card, it merely carries the Visa or MasterCard logo as a convenience. It allows you to use the card where ever Visa and MasterCard are accepted. When using the card, it is never reported as a credit card transaction, despite your option to choose between credit and debit. The difference is in how the item clears, whether you get reward points, and how much the merchant pays their provider for you to swipe debit or credit.

For instance, in the first case, if you choose debit and enter your 4-digit pin number, the transaction will clear immediately. If you choose credit, the transaction could take a few days to clear because it goes through the merchants’ batch process and it will come out whenever the merchant closes that batch. Even though the option is labeled as credit, it still comes out of your checking account and it is not reported to the credit bureau. It does not affect your score in any way, so those thinking it might help their credit scores to have one are misinformed.

The second part this affects is reward points. Some financial institutions offer reward points with their debit cards. However, those offers are usually worked out between the financial institution and Visa or MasterCard. So, what that means is that in order to get the points, you have to use the credit option and sign. Because Visa and MasterCard will get more money from the merchant processors when consumers choose the credit option, their rewards programs will require you to choose credit and sign for it in order to collect the rewards.

The third aspect to this is the fact that merchants pay two different rates for credit and debit. Merchants will want you to choose debit every time, that’s why if you tell them to go with whichever is easiest, they will go with debit. The reason being is that merchants get charged per swipe on every card. Each card type has a different rate, i.e. Discover and Amex are usually more expensive than Visa and MasterCard, which is why a lot of places won’t accept Discover and Amex. However, merchants will also pay more for a credit transaction than a debit transaction. So, when customers choose credit, the merchant is charged something like $.20 as opposed to a debit transaction that costs them $.15. That five cent difference can certainly add up. The rates will vary with the carrier that the merchant uses, but that’s just a rough example.

So, I hope I’ve answered your questions completely Beverly. Please let me know if I have not.

To give an example: at a credit union that uses just this “live” accounting, I had set up an automatic transfer to occur “Fridays”. As I had to learn the hard way, “Fridays” meant approximately 1 pm to them (really!). And I should emphasize “approximately” – it was anywhere between noon and 2:30 pm, whenever the computer (or some human?) got around to it. As a result, anything I charged to the account before noon was certainly considered an overdraft, and to be safe I had to wait until the end of the day – while my money was sitting in Savings, mysteriously waiting to be transferred. (Called about it, they said “that’s just the way we do it”.)

It is not unlikely that such unpredictable, undisclosed delays may occur for other transactions as well, depending on the bank or external factors. As a result, consumers dealing with a bank that uses “live” timing are in some ways worse off than at a bank with “end of day” accounting – they are at the mercy of “the system’s” idea of time – which could lead to petty haggling over what happened at which minute of the day. In that sense, I find the “end of day”, “credits first, then debits” method fairer to customers and overall more generous.

On two occasions, Bank of America reversed overdraft fees automatically for me when a deposit was made in the afternoon to cover debits posting in the morning. (This was in 2005/2006 – I don’t know if they still do it.) I liked that – it felt like good customer service, and overall fair.

Whether debits should be ordered smallest to largest or vice versa is a different story. In my experience, “smallest to largest” seems to be more favorable to the customer by far. (In fact, I believe this method is mandated in at least one state by state law.) If there really is an overdraft, then usually the largest transaction of the day already causes it, while one or more of the smaller ones will clear. Anyone acting on the customer’s behalf in the customer’s best interest would choose to maximize the number of transactions clearing for the customer, wouldn’t they? The argument that “largest first” tends to protect “important” payments like rent etc. sounds like a holdover from the old days when checks actually bounced even for minor overdrafts. (Or, it is just customer appeasement.) Today, the big rent check posting last would just clear and overdraw.

What’s probably worst about all this is that there is no regulation – the details depend entirely on the particular bank. This should not be so. Customers should know what they are getting with a bank account.