Are Credit Cards Really Safer Than Debit Cards?

Credit or debit — it’s a choice some consumers make without thinking, while others find the decision a bit more perplexing. There are a lot of things to consider when deciding which form of payment is best for you, but the recent spike in payment-system breaches brings one issue to the forefront: security.

Unauthorized transactions were more common on credit cards than debit cards in 2012, the 2013 Federal Reserve Payments Study shows, but when someone fraudulently used a debit card, the value of the unauthorized transaction was three times the value of the average legitimate debit card purchase. The average fraudulent credit card purchase was greater than the average legitimate purchase, but the difference was much smaller than with debit cards.

Fraud Protection Differs by Product

Credit card fraud and debit card fraud are regulated by different laws: the Fair Credit Billing Act and the Electronic Funds Transfer Act, respectively. With a credit card, you’re only liable for up to $50 of unauthorized activity, no matter when you report it. If your card wasn’t present in the unauthorized transaction, you have zero liability, said Gerri Detweiler, Credit.com’s director of consumer credit.

With a debit card, you have no liability if you report it stolen before any fraudulent transactions occur. If you report the loss within two days of learning about fraud or theft, you can be liable for up to $50. After that, however, your liability goes way up: $500 if you wait more than two business days to report fraud after learning of it, and if it goes unreported for more than 60 days after you received your account statement, you can be liable for all the money taken from your account, or more.

“Typically, that’s not something that for most people is going to be a problem,” Detweiler said, “but I have seen it pop up.” For instance, she once talked to a consumer whose elderly mother had a caretaker who had been using the woman’s debit card without anyone’s knowledge. They caught the fraud a few months after it started, and they ended up out of the money the caretaker had spent.

Is Debit Safer Than Credit?

The Fed’s payments study is based on 2012 transaction activity, and it classifies transactions in a few ways. With debit and credit cards, there are five categories, two for credit and three for debit: Credit card transactions either involve the physical card and a signature, or they are card-not-present purchases, like those online or over the phone. Debit cards can be used both ways, and the study looks at a third category, as well: ATM withdrawals and purchases made with a PIN.

Overall, there was a higher rate of fraud incidents on credit cards than debit cards in 2012. Of every 10,000 credit card transactions, 15.36 are unauthorized. Among debit card transactions, that rate is every 14.06 per 10,000. At the same time, people used debit cards much more often than they used credit cards: 64% of payment card transactions were made with debit cards and 32% with credit cards (prepaid cards accounted for 4% of transactions in 2012).

Because of that difference, a higher dollar amount of fraudulent spending came from unauthorized debit card use than credit cards: For every $10,000 spent on debit cards, $26.40 was unauthorized, but with credit cards, $20.73 was unauthorized.

Perhaps the biggest difference between these products emerges when you consider where that money comes from: Debit cards are tied to people’s checking accounts, sometimes their savings accounts, too. If you report the fraud immediately, you should get your money back quickly, but in the mean time, you may need those dollars to pay crucial bills. And if you miss payments on any of your debts, you can hurt your credit score (if you want to know how late payments can affect your credit scores, you can check your scores for free through Credit.com). Fraudulent credit card spending involves the bank’s money, giving you some breathing room between the incident of fraud and the time your bill comes due.

“It’s a very different experience,” Detweiler said. “With your debit card, you’re worried about the funds in your bank account. With a credit card, it’s their money — you let them know what’s happened, and let them deal with it.”