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When to Use Your Debit Card (and When Not to)

Posted on: December 03, 2020

Advice from Your Michigan Bank

Happy young parents with childThe holiday shopping season is here, and even with COVID-19-induced social distancing requirements, sales are forecast to increase 1 to 1.5 percent over last year to $1.147 billion. Consumer surveys show that more than 70 percent of people plan to spend at least as much or more than last year on holiday gifts. While shopping patterns seem consistent with last year, the pandemic is shifting holiday spending from in-store to online, meaning most cash purchases will transition to credit or debit card transactions.

Debit and credit cards are valuable financial management tools for any season. The team from your Michigan bank wants you to understand how to use each type of card so you’ll have more control over your money.

The Purpose and Positives of Debit Cards

A debit card is like a portable bank account. Instead of carrying cash, you use a debit card to make purchases, and money is quickly withdrawn from your account. 

Debit cards offer convenience:

  • You don’t need exact change to make a purchase.
  • Your wallet is thinner and lighter.
  • Many are compatible with your phone’s ‘mobile wallet.’

More importantly, however, is the power of debit cards to help you with cash management.

  • Since your money is linked directly to your checking account when making a debit card purchase, you’re less likely to overspend.
  • A record of every debit card transaction will show on your monthly checking account statement, giving you an easy way to review spending vs. your budget.
  • Many checking accounts offer real-time notifications when transactions are made, further helping manage your spending and guard against fraud.

Some banks may even offer rewards for using your debit card. For example, at Level One Bank, we pay $0.10 cash back for every debit card transaction when you choose ‘credit’ at check-out. Learn more about our Level One Bank debit card rewards here, and check with other banks in Michigan to see if they offer any debit card perks.

Putting Your Debit Card Away and Choosing Your Credit Card

A credit card is essentially a short-term loan. When you purchase 'on credit,' you're typically given a grace period of 30 days to pay the balance due. Most credit cards are interest-free if you pay the full amount on time.

Credit cards provide more fraud protection than debit cards.

  • If someone uses your credit card, they're ultimately stealing funds from the credit card company or the merchant where the card was used.
    • You can report the crime to your credit card company and prevent additional losses before your credit card bill is due. Most companies offer zero-liability policies, meaning you won't be responsible for unauthorized purchases made with your card.
    • If you’ve used your debit card, the money taken from your checking account is gone. Banks in Ann Arbor, Detroit, and Grand Rapids will refund the loss of unauthorized transactions, but the process may take up to ten days, temporarily limiting your cash for remaining bills.

You can also earn rewards when you pay with most credit cards.

  • Rewards are usually in the form of cash or points.
    • Cash-back rewards may return a small percentage of purchases as a credit on your statement, giving you discounts on purchases. Some cards will issue a check with your cash rewards.
    • Points (or miles) are redeemable for travel or statement credits.
    • Although some debit cards may offer rewards, like Level One Bank’s debit cards, it is much more common to see rewards with credit cards.

Using your credit card responsibly also helps you build your credit history.

  • Michigan banks and credit card companies report usage to major credit bureaus, including TransUnion, Equifax, and Experian.
  • As you make purchases and payments, you're demonstrating money management skills that could impact your credit score.
    • FICO provides helpful tips on how to positively impact your credit score.
  • A high credit rating can better position you for life’s milestones like buying a car, renting an apartment, or buying a home.

Should You Choose ‘Credit’ When Using Your Debit Card?

Closeup of man hand holding boxMany retailers will give you the ‘debit or credit’ option when you make a purchase.

  • Selecting 'credit' doesn't impact your credit history because the funds move directly from your checking account.
  • But choosing credit does give you additional security.
    • Your PIN (personal information number) remains private.
    • Banks issuing the debit card usually make quicker refunds for unauthorized charges.
    • If your card has the Visa or Mastercard logo, they extend their Zero Liability protections when you choose credit.

Enjoy the Seasons with Your Debit (and Credit) Card!

Talk with the Level One Bank team about our credit card programs and checking accounts with debit cards. Many of our checking accounts offer cash-back rewards on debit card purchases when you choose the ‘credit’ option! Visit us at one of our local branches in Ann Arbor, Detroit, or Grand Rapids, or connect with us online. Make every season rewarding by partnering with Level One Bank!

“I've always been pretty careful at keeping track of my spending, so using my debit card is often the easiest way of doing that.”

–Andy Murray, Tennis Champ

Posted in: Your Money, Your Life

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