Debit Card Dangers - When to Use Credit Cards Instead of Debit Cards

It’s well known that credit cards are generally safer to use than debit cards. If a crook makes fraudulent charges on your credit card, you can typically handle it with a call and some paperwork. The money never leaves your account. However, when there is a fraudulent charge on your debit card, the money actually leaves your checking account. You then have to fight to get your money back. According to this Clark Howard post, "it's now taking longer and longer to get that money back."

To minimize the risk of debit card fraud, Clark Howard recommends avoiding using your debit card at independent ATMs, at self-service pumps at gas stations, at restaurants and for online purchases.

Clark Howard suggests the only reason people choose debit cards over credit cards is to avoid overspending and debt. However, savers have another reason to use debit cards. That’s to meet the monthly requirements on high-yield reward checking accounts. Many of these accounts have much higher yields than internet savings accounts (up to a certain balance). However, to qualify for the higher rate, the customer has to satisfy monthly requirements. Those requirements almost always include debit card usage (see reward checking overview).

So if you’re a saver with a reward checking account, you have to use your debit card. However, you may still want to use a credit card in certain places for safety reasons. Also, savers may still want to use credit cards to earn cash back rewards, especially on large purchases.

If you have one or more reward checking accounts, what purchases do you make with your debit cards and what purchases do you make with your credit cards?

Another issue to consider is making sure the dollar amount of your debit card purchases is not too small. Most reward checking accounts don’t require minimum dollar amounts on debit card purchases. They typically just require that you reach a certain number of purchases per month. There are a few banks and credit unions that do require that each purchase be at least some minimum amount (like $5) or that the total amount for all purchases during a month be a certain minimum (like $100).

Even if your bank doesn’t have a requirement on the amount of debit card purchases, it’s still a good idea to avoid too many small purchases. There have been cases when banks have threatened to close accounts for those making too many small purchases. Even if your bank doesn’t warn you, you may still want to make at least a few sizable purchases with your debit card. The fees that retailers pay on each debit card purchase help pay for the reward checking interest. Those are called interchange fees, and they average around 1% of each purchase. If your total debit card purchases are less than $100 a month, the banks won’t make much on interchange fees, and it will be harder for the banks to afford the high interest rates.

Reward Checking Accounts

To find reward checking accounts available in your state, please refer to our reward checking table. You can also use the table to find reward checking accounts available nationwide. Refer to this post to learn how to use the table.

To learn more about reward checking accounts, please refer to my post 10 Common Traits of High-Yield Reward Checking Accounts.