Credit or Debit?

Another decision you make often is how to pay for things. Even when you use debit, you can choose to use a PIN or signature. "Retailers generally prefer that you use PIN transactions, while banks encourage you to sign for purchases by offering mileage points or other incentives for signature-based debit payments." ("The dark secrets of debt" from consumerreports.org). When you use a PIN, the amount is immediately withdrawn from your account. When you use a signature, the transaction takes a few days because it goes through the credit card network.

Consumer Reports adds: "Signature transactions are more profitable for banks. The interchange fees that banks get from merchants for processing signature payments is much higher than for PIN-based transactions. On a $100 purchase, for example, the bank that issued the card typically collects only about 20 cents in interchange fees when payment is made using a PIN. But it gets at least seven times more than that if the customer signs to authorize the purchase, says Avivah Litan, a senior analyst at Gartner, an information technology research company in Stamford, Conn."

So when I buy a sandwich for $7.00 with my visa debit card using a PIN, visa gets 43 cents from the merchant. Check out this FUN website, The true cost of credit, which calculates how much it costs the merchant to process your transaction based on what kind of credit card you have. You don't have to actually enter any numbers, just scroll down a bit and click on whatever brand you have. Of course, you eventually pay for the convenience of using a credit/debt card because the merchant raises prices to cover those fees. In a year, that sandwich shop may pay $10,000 to visa in transaction fees. If you're really trying to support a merchant, give em cash dollars, not plastic.