What Should You Be Using...Credit Cards or Debit Cards?

​So much of what we do is now online, including bill payments and purchases.  Unfortunately, with that increased online activity comes with it increased risk in having your financial information comprised.  Recently I’ve had a few of nonprofit clients ask me if they should get a credit card for their organization or if they should just use the debit card linked to their bank account.  Before I go into best practices, lets summarize the differences.

​	Credit Card	Debit Card
Connection	No need to connect the card to an existing bank account	Must connect the card to an existing bank account
Monthly Bill	Monthly bill	No monthly bill
Spending Limits	Set by your approved credit line	Set by the amount of money in your account plus any overdraft protection you may have
Associated Fees	Some have annual fees plus any interest charges that may accrue	No fees unless your bank allows you to overspend the deposited balance and then you may incur overdraft fees
Security	Security is poor but has been getting more stringent with the introduction of chip cards	A PIN helps with security, but it still may be used as a credit card unless you have been issued an ATM card, which is different than a debit card
Fraud Liability	Low liability. Many issuers will not hold you liable for any fraudulent charges and if they do it is capped at $50 per card	Higher liability. The money is removed from your account at the time of the transaction and you may have to wait for your bank to finish an investigation before recovering losses

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The important takeaway from these differences is the fraud liability component. In the event you are using a debit card and it is compromised, your organization is at a higher risk of losses. When someone steals your debit card they have immediate access to the funds in your account. It can take up to 10 days for the bank to investigate the fraud and return your money. Even worse, if it takes you more than 48 hours to notice and report the fraud, you might be liable for as much as $500.00.

When someone steals your credit card, they have immediate access to your line of credit. The funds in your actual bank accounts are separate and under the federal consumer protection law, you can never be liable for more than $50 of fraudulent activity on a credit card.

Another issue that organization may face with the use of debit cards is “blocking”.  This is where a merchant will block a card in advance for the estimated cost of the transaction even though the charge might not be completed for several days.  If you are close to your account limit, you could end up having transactions refused or checks bouncing.

If your organization needs to make online purchases and applies for a credit card, you can always keep limits low and balances can be paid on time so as not to incur fees. Here is a great resource from the Federal Trade Commission with more Debit Card and ATM facts and how to protect yourself.
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https://www.consumer.ftc.gov/articles/0213-lost-or-stolen-credit-atm-and-debit-cards