Credit or debit? When using my atm/debit card, which should I select and why? I have always selected ‘debit’ (and entered my PIN) in the past, because, well, it’s a debit card and it comes out of my bank account either way. Right?

Right. And there is very little difference in using either, except for possibly the time it takes the transaction to clear your account. Debit cards came out of the point-of-sale (POS) technology: an electronic funds transfer at the point of sale. The transfer is instantaneous and done at the sale counter with the use of a personal identification number (PIN).

 In the past the credit card sale was also done at the sale counter but was not instantaneous. It used a paper slip that was paid against your checking account like a check. It took days for the slip to travel through the automated clearing house (ACH) going from a deposit into the retailer’s bank account then being presented for payment on your account at your bank. Because credit card sales used paper slips to be processed by both banks, there was a charge to the retailer for accepting them. It used to be 3% to 3.5% of the total charged and deposited amount. Many times the retailer would then pass that charge along to the customer by adding an amount to their purchase if they used a credit card to pay.

 Today a credit card purchase is paperless and the charge for it has largely disappeared. However, it is still not a point-of-sale transaction and does not transfer funds electronically at the sale counter. It can still take a couple of days to clear; and sometimes because of more efficient, paperless processing it can clear the same day when the retailer’s account is at the same bank as the customer’s.

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