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Using Your Debit Card: PIN vs. Signature

Debit cards are extremely popular because they offer the convenience of plastic without you actually having to borrow anything. Your debit card is connected to your checking account, which means that your purchase amount is deducted directly from your bank account. As a result, it does not accrue interest, since you are not building a balance. If you do not have enough money in your checking account to cover the purchase, you can be denied (unless you have opted in for overdraft protection). Most debit cards have a credit card company logo that ensures that you can use your debit card wherever credit cards are accepted. This makes it a little easier to tap your checking account, no matter where you are.

One of the things that is interesting about debit cards, though, is that you usually have an option to choose whether to use a Personal Identification Number (PIN) to authorize your purchase, or you can sign the sales receipt – just as you would with a credit card. Even on point of sale machines that automatically bring up a screen asking for your PIN, you can still choose “credit” and sign to authorize your transaction (even though you will not actually be using credit; the money will still come out of your checking account).

This choice is one that many of us do not think about very often. You may think that there is no difference between a PIN and a signature transaction, but there are differences. What you choose could have very real consequences, for you and for the businesses that you frequent.

PIN Debit Transactions

First of all, when you use your PIN, you will find that the transaction is settled more quickly than if you sign for a purchase. While money comes out of your checking account whether you use a PIN or a signature card, with a PIN it often comes out a little faster. Your PIN transaction can be settled at the end of the day through the ACH. This can reduce the chance of chargebacks on the card, which is a plus for many merchants.

For merchants, a PIN transaction from customers is more desirable than a signature transaction. This is because there is normally a fixed fee when it comes to PIN transactions. For larger purchases, your use of a PIN when making a purchase means that the cost per transaction is lower, since the fee does not increase with the purchase amount. However, by the same token, a small transaction made with a PIN can be more costly for the amount. Indeed, if your purchase is only a couple of dollars, the PIN transaction may actually cost more than the purchase! This is why some smaller retailers will only accept card transactions if your total order exceeds a certain amount. It is also worth noting that a few banks charge account holders a small fee for each PIN transaction.

However, if you have a rewards checking account, PIN transactions may not be your preferred option. This is because many banks require you to make signature transactions if you want to earn rewards. You PIN purchase may not actually help you gain reward points or be eligible for cash back programs. The reason that debit rewards programs prefer signature transactions is relatively clear when you realize how much money can be made payment processors when you sign for your debit card purchases.

Signature Debit Transactions

The alternative to using your PIN when you swipe your debit card is signing for your purchase. However, when you sign, the merchant is stuck with higher fees. Payment processors charge merchants a fee that amounts to a percentage of the sale. So, the bigger the sale, the higher the fee. With signature transactions, the merchant always has to consider the cost.

You, however, appear to benefit with signature debit transactions. It takes longer for these to settle through the ACH system, so, in some cases, it might actually take a couple of days for your signed debit transaction to be deducted from your checking account. Additionally, if you have a rewards checking accounts, signing for your purchases can help you see rewards build up a little bit faster. You also need to check the terms of your debit agreement, since fraud protection similar to that experienced by credit cards may only be offered on signed purchases.

In the long run, though, signature debit transactions may actually cost you a little bit more. Your rewards debit card might come with an annual fee for participation in the bank’s program. It could take a long time to build up the rewards to offset that cost. Another issue is that of higher prices. Many merchants who pay transaction fees for your signature transaction pass the costs on to you. Merchants often build in the cost of signature transactions into prices, resulting in higher prices for everyone.

For a long time, many smaller merchants resisted accepting credit and debit cards because of these fees. However, because plastic is so pervasive in our society, it is harder and harder for many businesses to avoid accepting debit cards. It has become a necessity, with the increased business (or, at least, the fact that they are not losing as much business) offsetting, to some degree, the fees that need to be paid.

Which Should You Choose?

In the end, whether you choose a PIN or signature transaction is up to you. You might be required to make a certain number of signature transactions to take advantage of special deals and promotions (like $50 for opening a checking account), or you may want to take advantage of the likelihood that your transaction will not clear your account for a couple of days.

On the other hand, you may want to make a PIN transaction because it is sometimes considered a little more secure at the terminal. Additionally, if you are interested in reducing costs for your local businesses, a PIN transaction might be your preference.

  |     |   Comment #1
Use a credit card instead of a debit card, but don't buy more than you can pay back at the end of the month.
  |     |   Comment #3
One important aspect/factor that seems to be missing is that of fraud protection; Visa/MC networks offer more/full protection for signature-based transactions.  It is actually safer (IMHO) to employ signature-based transactions for reward checking accounts. 

In a rare case that one desires to catch up with the number of debit card transactions (say at the end of the montly cycle), PIN-based transactions are definitely quicker to settle.   
  |     |   Comment #4
listen to anonymous #1,  the last time i paid interest on my credit card was when i was about 18 or 19 years of age, today im 62...
  |     |   Comment #5
More from Misinformation Miranda.

As 51hh said, signature-based transactions offer better protection and rewards.  If, for whatever reason, you choose to use debit cards or credit cards, pinless is the best way to go.
  |     |   Comment #6
Really? A PIN transaction is MORE secure? From customer data leaks to someone simply watching and memorizing over your shoulder, PIN transactions are ridiculously INsecure. 51hh is right - to get the full fraud protection offered by Visa or MC, and to earn debit rewards, I'll continue to sign, thanks.

  |     |   Comment #7
Ken do you review these posts by Miss Marquit?  It seems like every one has gaping holes in logic or bad facts in it.

It's disconcerting to see so much bad advice here.  This used to be such a good blog.
  |     |   Comment #8
I only use a debit card at  ATMs (using a PIN) when I travel out of the country to obtain pocket cash.  Is there an alternative to this method of use?
  |     |   Comment #9
I worked at a bank for 30 years. Not sure how many years debit cards have been around but know the mega bank that I worked at treated debit and credit cards the same. Fraud transactions were all reimbursed. When someone would buy something on line giving a debit card number and then the next month they would debit the amount again the customer would come in sign a fraud report and the bank would go after them. Most times we would end up just closing the account and opening a new one with a new debit card or just closing the debit card and giving out a new one. Never any problems. Not sure what the law is just know what the branch that I worked for did for their customers. I retired in Sept, 2008. Things may have changed. Also at the bank I worked at, the debit amount was on hold immediately after you used it. It was posted that night if used as a debit and the amount was still on hold even if used as a credit card and not posted right away. So if you had $10 in your account and used your debit card as a credit card for $7 and it did not post for a couple of days that amount was still on hold, and you then had a $5 check came thru that night the $5 check would bounce even though the $7 transaction was not posted. We would tell our customers when they opened their checking to subract every check they wrote immediately and also everytime they used the debit card whether it was as a debit card or credit card to subract it immediately because those funds were long available for use.
  |     |   Comment #10
1 of my RCA demands "credit", the other doesnt. Most of the time, Credit is easier so I go with that. (Even though the poor retailer is getting hosed with fees).

I also have a paypal card that I am grandfathered in at 1.5% cashback. And I use that when its my best option.

I have had 2 credit cards somehow compromised over the last 18 months and I STILL dont know how. Im pretty diligent so It has to be on the banks end.

Regardless, I try to have sympathy for the gas stations where I charge 3 cents worth of gas repeatedly to meet my requirements. But, Im not willing to lose my interest one month over it.

I guess I should open up about 20 RCAs. I just dont have the diligence needed.

So, Im going with Penfeds 5% 10 year CDs. And I also am in the stock market. (Not anywhere near as heavy as if I was younger & more optimistic)
  |     |   Comment #11
I agree with #7 about the demise of this blog. I’m beginning to suspect that Ken is no longer in charge. His posts were always so intelligent and meticulously accurate. It’s hard to believe that he would allow Miranda Marquit’s misinformation to be published.

 I used to frequently recommend this blog on other financial boards I visit. Sadly, I can no longer do that, and feel that I must warn people not to trust the information here.

 Willing to forgive and forget ... if only Ken would revive the blog to its former quality.
  |     |   Comment #13
Here’s an article from a reliable source on the dangers of debit cards -- which I believe should be the first thing mentioned in any discussion of debit cards:

KJD Houston
  |     |   Comment #15
With Chase Bank, after and upon a credit card recurring payment which may take upto 3 days to clear, there is a extended transaction fee of $15 over and beyond a non sufficient fee of $35 if you do not bring your balance back to positive within the required days.(usually 3 days not including weekends). Therefore, a signature transaction might actually end up costing you a lot more than originally intended.(especially if u r single and traveling overseas). I had chosen to opt out of overdraft protection before august 15th but that does not apply to recurring credit card signature payments.I would like someone to help me fight this with one of the federal bureau agencies (most likely FDIC or OCC).I figured when you opt-out of credit card overdraft protection that all credit card transactions are subject to being denied including recurring credit card payments. I have been proven wrong and i have documents to prove chase has charged me non-sufficient as well as extended days non-sufficient fund fees.
Carlos R Coquet
  |     |   Comment #16
Hmmmm.  Talk about wasted space.  You could have said everything above in one tiny paragraph:  when you choose debit you need to enter a PIN and the merchant pays a minor fee, when you choose credit, you have to sign and possibly show an id and the merchant loses a percentage of the sum you are signing for (perhaps 1 or 2 %) because the transaction is treated like a credit card purchase.  (The actual "discount rate" varies from merchant to merchant depending on what deal they were able to work out with the bank.  The higher the dollar volume and the lower the number of transaction the lower the "commission" the merchant has to pay.  If you bought $100 the bank may only give the merchant $98.  In the long run, using credit causes inflation because merchants have to raise price to overcome the bank fees.)
  |     |   Comment #17
If I'm at a gas station and select credit is it the same as a signature based transation even tho there is no signature?  Need that to qualify for rewards checking.
  |     |   Comment #18
Pin transactions are safer if you have to use a machine like at walmart. You can sign whatever you want, my husband has signed "i love you" before. As long as there is some sort of mark the machine accepts the signature. That makes it real easy for criminals. So when I go to the store I prefer using a pin. When I got out to eat or get gas, I sign.
  |     |   Comment #19
Don't trust the bank!
In the end they get you anyway.
  |     |   Comment #20
Using your PIN is not secure. There have been some cases where some merchants' POS software have stored customer PIN's -- which is not supposed to happen.

And, just because you always use your PIN does not mean that Thief Doe has to use your PIN if he has your card. Always using your PIN does not cancel the "Signature-ability" of your card. Meaning, if someone stole your debit card, they have every ability to use your card with a signature.
  |     |   Comment #21
why do merchants want to keep singtures on file and are they safe. what happens if they go out of busness, how long can they keep singture on file
  |     |   Comment #23
Probably as long as your Ex and use your old signature!
  |     |   Comment #22
I prefer do use a signature for the transaction rather than a pin. What's this business about your pin being stolen while you enter it by savvy people with the right equipment? I doubt anybody could forge my signature.
  |     |   Comment #25
The remedies for one that had their signature forged are light years from that available for a "forged" pin.
  |     |   Comment #26
I am having issues with Walmart and the use of my debit card.  I select credit on the self check register.  I then swipe my debit card.  It asks me if I want cash back and I tell it no.  It never gives me the opportunity to key in my PIN, however, it runs my transaction as a debit transaction.  Is this legal for Walmart to decide for me that the signature based transaction that I have requested is automatically changed to a debit transaction even though I have not entered a PIN?
  |     |   Comment #30
I realize this is a really, REALLY old article, but I came across it when I was looking up 'WHY' my NC smiOne Child Support card said that at POS, it was best for me to chose Credit over Debit. This was listed under "Important Information about Merchant Authorizations" on my online account statement.

Previously, I worked for a top financial institution in their e-commerce, Trade, Researcher& Development, Resolve Inquiry, and Customer/Internal Customer Service.

I was completely new to the finance/accounting/banking world, but a personal incident taught ME that for private citizens, the Debit/PIN Option was quicker and usual the way to go for you & the Merchant.

I can't remember EXACTLY how it went all these years later, but the company I made a $50 purchase at, choosing the Credit Option, held that transaction for SUCH an extended period of time AND added a HUGE fee along too it.

It caused a terrible domino effect in NSF transactions...that...had I NOT worked for that bank, had I NOT worked in my dept, and had the supervisor not OVERHEARD the customer service call I was making...I would have been paying nearly $1000.00 in fees. All due to that merchant and then an error made on the bank's end.

So, obviously. aside from the "Rewards" suggestion mentioned un this article, AND with the current year being 2019, IS there a reason I / We want to be choosing Credit ovet Debit at POS with our smiONE Child Support Cards?

With it being funds meant to support my kid, I obviously 'nickle & dime' THIS account extra carefully. I'd appreciate any possible responses.


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