The Difference Between Using Debit and Credit Cards When Making Online Purchases

Our customer care team frequently gets questions about using credit and debit cards online. Here are the answers to the most common questions we get.

Q: What’s the Difference Between Debit and Credit Cards?

You apply for a credit card from an issuing bank or credit card agent (think Chase, Citibank, etc.). You do not need to have a bank account with the bank that provides your credit card.

The card gives you a line of credit, up to a set credit limit, which the card agency determines. You may continue to charge on the card until you reach that limit. You are responsible for making payments each month, and will pay interest unless you pay off the entire amount each month.

Debit cards on the other hand, do not supply a line of credit. Unless they are pre-paid debit cards, they are tied to your personal account at the bank that issued the card. When you make a purchase, funds are immediately withdrawn from that tied-in bank account. Purchases made with a debit card cannot exceed the amount of money that the you have in your account.

Debit Pros & Cons

Debit cards are excellent tools for making sure you don’t overspend, and unlike credit cards, they don’t charge an annual fee. However, because they are tied to your bank account, the risk of an online purchase is higher than with a credit card. If someone gets your debit card info, it’s fairly easy for them to drain your bank account.

Another drawback is that a transaction may place a hold (also called a block) on your money. When you submit your card info, the merchant’s bank will ask your bank if there is enough cash for this transaction. Your bank may place a hold on this money - but your account may still show it as available until the merchant takes the next step. Because of this, you can accidentally bounce checks or be charged overdraft fees.

In addition, if you report debit card loss or fraud within two days of the fraudulent activity, your liability is limited to $50. If you don’t notice until after two days, you’re responsible for up to $500. Don’t report the problem until more than 60 days passes? You are out of luck - and money.

(Note: To an extent, pre-paid debit card can limit some risk. They only have a pre-determined sum of money loaded - but there are fewer safeguards in case of fraud. And the bank fees for pre-paid debit cards can be high.)

Credit Pros & Cons

Credit cards, on the other hand, are a bit less risky online. While the interest rate you pay for your line of credit may be high, the protections provided by the issuing agent are higher, too. Generally, the most you can lose if you report a fraudulent transaction may be $50. If your card wasn’t lost, but was always in your possession, you may be completely protected against loss.

In addition, while a company may place a hold on a certain amount of credit on your card, it doesn’t stop you from paying bills out of your bank account.

Whether you use debit or credit, you can mitigate your risk with the tips below.

Mitigate Your Risk

There are ways to make sure your online purchases are as safe as they can be. Here’s the basics. (For more in-depth tips, see the National CyberSecurity Alliances “Online Shopping Tips”)

1. Look for the lock on the website.
2. Monitor your account - know what you ordered, when, for how much, from whom. Many accounts will let you set up notifications when charges are made.
3. Use secure internet connections - free public wifi from Starbucks is not what you should use when ordering online
4. Look the merchant site over carefully. Check contact information - no phone or address can be a red flag. So too can be the lack of reviews, return information, or security/privacy policies. Note any guarantees or protections offered.

Q: How Do Online Charges Work?

Most online retailers accepting debit and/or credit cards follow the same primary processes. The basic process is as follows:

• You enter your card information and hit the Submit button.
• The merchant sends an “Authorization Request” to the bank that issued your debit or credit card. This request checks to see that the debit/credit card information you provided is accurate, that the card is valid, and that there is enough available credit or funds to complete the order. (Note: Some banks place a hold on the funds at this time.)
• When the merchant verifies that the sale is complete, they run a “Capture” request. Your card is charged for the order at this point. This completes the transaction that was originally “reserved” when the Authorization Request was sent.

The timing of any of these events may vary based on the merchant’s or your bank’s policies. Most credit card companies have their own rules about how your funds are held and/or handled. Many financial institutions, and the credit card companies themselves, have different time periods that they allow an authorization request to remain valid, usually between 7-30 days.

Note: Some credit companies allow these funds to show as “available” on your credit balance or bank account. Others may immediately deduct the total of the Authorization Request from your available balance. This is completely under the control of your bank or financial institution and, unfortunately, there is nothing that any online retailer can do to change these circumstances.

Q: When Do You Charge My Card?

We try very hard to run the charge on your card (or PayPal account) after your purchased items have gone into the shipping process. Unfortunately, this is not always under our control (see above).

We consider it to be a bad business practice to charge your debit/credit card before your purchase ships. Most ethical businesses only charge when the purchased items actually leave their warehouses. While there is no law that requires this, there are VISA and MasterCard regulations regarding the timing relationship between charging the card and fulfilling (shipping) the purchase.

Your Protections

Per the Fair Credit Billing Act, it is illegal to not ship a customer’s purchases within an advertised time period. If a website states that a particular item takes 5-7 days to ship, the merchant may legally charge your card right away, provided they do ship within that window. (If a website that does not state a turnaround time, it has up to 30 days to actually ship your merchandise after charging your card.)

A slight delay between the charge and the shipping date is a common practice for many online retailers and well within each company’s legal rights. A buffer period between the card being charged and the product leaving the facility can work for the consumer, too. It gives the customer time to notice and protest the charge if it is fraudulent.

Another example of a beneficial lag between charging and shipping: A company has production and shipping employees that work on weekends, but their office and financial employees do not. If Shipping sends an item on Saturday, the office worker may run the charge card on the Friday before. The customer receives the product earlier than they would if the company had waited to ship until the card could be charged.

If you still have questions, please email or call our customer service team at (800) 537-8816 (USA & Canada) or (425) 771-6500. You can also visit our website and use the chat function on any page to talk to Customer Care.