To PIN or Not To PIN?

When you use your debit card for payment for an in-person transaction (also referred to as a point-of-sale (POS) transaction and signature-based transaction), you have two options on how to use it – debit or credit. While the phrase may imply different things, both mean the same thing – you are drawing on funds from your available cash balance for the purchase amount.

When you select debit and enter your PIN to complete a payment transaction, this subtracts the amount immediately from your available cash balance. Conversely, when you select credit, the transaction posts immediately, but may be reflected in your account as “pending.” In the later scenario, the most important thing to know is that you should still view it as you would a cash transaction - just because it is “pending” does not mean that you haven’t spent that money. This line of reasoning could result in overdraft fees in your account, but can also be easily avoided by carving out a cushion in your account (like a balance you won’t go below) or by setting up a savings account linked to your checking for overdraft protection. 

So, is there a case to be made for using your debit card as credit? The answer is yes. There are a few differences in the way these transactions are processed, and a few benefits to processing your purchase as “credit” – we’ll explore them here.

PIN Protection

Let’s face it, there really wasn’t an upside to the Covid-19 pandemic. BUT, if forced to identify one, it would probably be the six-foot social distancing that became expected in public spaces, including checkout lines. This put space between us and others, thus protecting information like your PIN number. Thankfully, the pandemic is behind us, but with that comes our return our old habits which often leave us feeling too close for comfort at a register. When you use your debit card for a signature-based transaction, you don’t have to worry about anyone observing the PIN you typed on the keypad - which is often not adequately protected from the prying eyes of others.  

Unauthorized Charge Protection

One advantage of choosing credit and paying for a purchase is the benefits offered by card networks. For example, the VISA network offers you zero liability for fraudulent purchases. If you use your debit card at a restaurant and the waiter adds an extra zero to the tip amount or swipes your card twice, the protection could help you when you’re trying to get reimbursed for the unauthorized charge.

You'll Stay Out of Debt

With a credit card, you’re spending money you don’t have. You’re borrowing money from the credit card provider, and that debt is due at the end of the month. If you can’t pay it, you can wind up with interest and financing charges stacking debt on top of debt

Bankruptcy courts are full of stories of people like this. Living paycheck to paycheck on credit cards, they spend as much as they make every month. Then, one month, they miss work due to illness or injury. A sudden, unexpected expense crops up. They miss one payment, then get hit with a late fee and an interest rate charge. This is the snowball that starts the avalanche. Now their debt starts accumulating faster than they can pay it off. This is how ordinary, responsible people end up filing bankruptcy with two or three times their annual salary in debt.

Using a debit card means you’re spending money you already have. You’re not racking up debt and you’re not living beyond your means. Using a debit card forces you to practice disciplined budgeting and sensible spending. You won’t have the capacity to spend beyond your finances. You can keep the credit card for emergency spending only, which will keep you from tripping into serious financial trouble.

Easy Returns

Easy returns. If you have to return an item that you purchased using your debit card, the funds are automatically deposited back into your account. However, when you enter your PIN at check-out, the merchant has to give you cash back, which means you have to make a trip to your bank or credit union to deposit it into your account. I don’t know about you, but I interact with my financial institution daily – often several times a day because mobile banking makes it easy to pay bills, transfer funds, and deposit checks. But to deposit cash I must physically drive to a branch or drive-thru, something I just don’t have time for most days.

Ka-Ching! Ka-Ching!

While it’s not very common, but some financial institutions offer rewards for purchases made using your debit card. And while we don’t mean to brag, Education First is one of them. This month (October 2022) we’re rolling out totalREWARDS, which allows you earn points that can be used for travel, merchandise, gift cards, and yes, cash back. And because we believe that loyalty deserves to be rewarded, the Education First totalREWARDS program doesn’t require you to activate offers or limit rewards to certain merchants. With totalREWARDS, members earn rewards on every single signature-based purchase, every single time.

So remember, the next time you are in the check out line, consider the benefits and protections that you might be missing out on when you opt to enter your PIN.