Are Credit Cards Safer Than Debit Cards?

Many people still wonder whether or not credit cards are actually safer than debit cards. Lots of individuals don’t know about the differences in liability protection that exist between credit and debit cards and don’t factor in a lot of the lesser known protections offered by many credit cards. 

In this article, I’ll break down which is safer to use and give you some insight into why you should choose one over the other. 

Are credit cards safer than debit cards?

Generally, credit cards are safer than debit cards because there is no risk of depleting your bank account and they offer less restrictive liability limitations along with more protections for purchases and travel.

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Better financial security

For the most part, using a credit card will provide you with better financial security. This is primarily because you will have better liability protection and also because you won’t have to risk going without access to your funds in your bank account for quite some time. I’ll explain more about these below.

Liability protection

Contrary to what many people believe, both credit and debit cards have limited liability protections. In fact, if your credit, ATM, or debit card is lost or stolen, federal law limits your liability for unauthorized charges.

The limit on your liability works different for credit cards and debit cards, though. That’s because there are two separate laws that govern debit cards and credit cards when it comes to unauthorized use.

Liability limitations for credit cards

Liability limitations for credit cards, under the The Fair Credit Billing Act (FCBA), limit your liability for unauthorized use of your credit card to $50 (many banks won’t even charge you this $50 amount).

But if you made a report of your lost credit card before it is used, the FCBA says you are not responsible for any charges you didn’t authorize. Now, if your credit card number is stolen (but not the card) then you will not be liable for any of the unauthorized use.

You just need to make sure to contact the creditor within 60 days after the first bill with the error was mailed to you. The creditor must acknowledge your complaint within 30 days after receiving it and they must resolve the dispute within two billing cycles (but not more than 90 days) after getting your letter.

Liability limitations for debit cards

The limitations for liability are a little different for debit cards.

If you report an ATM or debit card missing before someone uses it, the Electronic Fund Transfer Act (EFTA) says you are not responsible for any unauthorized transactions. If someone uses your ATM or debit card before you report it lost or stolen, your liability depends on how quickly you report it.

The chart below provided by the FTC breaks down your maximum potential loss:

If you report:	Your maximum loss:
Before any unauthorized charges are made.	$0
Within 2 business days after you learn about the loss or theft.	$50
More than 2 business days after you learn about the loss or theft, but less than 60 calendar days after your statement is sent to you,	$500
More than 60 calendar days after your statement is sent to you.	All the money taken from your ATM/debit card acount, and possibly more; for example, money in accounts linked to your debit account.

If someone makes unauthorized transactions with your debit card number, but your card is not lost, you are not liable for those transactions if you report them within 60 days of your statement being sent to you.

So when it comes to limiting your liability for debit cards, you need to be more on top of the activity on your account in order to limit your liability.

For a debit card, if you don’t act within two business days of learning about the loss, you could be liable for $500 or more but for a credit card as long as you report the loss within 60 days of receiving your statement, your maximum liability is $50.

Another big takeaway here are that if your card number is stolen but your card is not lost, you get the most flexibility with limiting your liability.

If you are ever in doubt about your coverage, just check the terms and conditions for your bank. In some cases, the banks may provide better liability protection than required by law. 

For example, Wells Fargo states: 

Zero Liability protection: Your Wells Fargo Debit Card comes with Zero Liability protection at no extra cost. You will be reimbursed for promptly reported unauthorized card transactions.

If you dive into the terms and conditions, Wells Fargo states:

Your Card comes with Wells Fargo’s Zero Liability protection, which provides you with more coverage than what Regulation E requires for consumer cards (see “Liability for unauthorized transactions according to Regulation E” above).

With Zero Liability protection, you will have no liability for any Card transactions that you did not make or authorize, so long as those transactions occurred before the end of the 60-day period described below.

So both credit cards and debit cards have limited liability protection but debit cards have more restrictions for limiting your liability.

But that’s not even the biggest negative when it comes to using a debit card.

The biggest problem with debit cards is that its protection kicks in after the fraudulent activity has occurred which means that your funds will not be in your bank account.

No depleted bank account

One of the biggest reasons for using a credit card over a debit card is that you do not run the risk of your bank account getting depleted.

Let’s say somebody steals your debit card and was able to also obtain your pin. And now they make a $5,000 purchase from your account leaving you with virtually no funds left in your bank.

Now you go to file a dispute.

Well, the financial institution has 10 business days to conduct an investigation of the claim. 

If the bank takes longer than 10 days to conduct the investigation, they have to give you the disputed money until the process is over which could last up to 45 days.

But still, that’s potentially 14 total days (weekends included) where you could go without your funds in your bank and there would be nothing you can do about it based on what the law states. 

And just think about all the bills and expenses you might have to pay in a two week span. Not having the funds to cover those bills could be a complete disaster!

Now consider if that original fraudulent activity was done on a credit card and the crooks purchased $5,000 worth of goods. You would not be without cash. Instead, you would now only have a $5,000 bill that you would be able to get sorted out by claiming fraud with your credit card company.

And according to the FTC, “[y]ou may withhold payment on the disputed amount (and related charges) during the investigation.”

It’s worth noting that the the disputed amount can be applied against your credit limit, so the fraudulent activity can still affect your finances.

But I think most people would agree that having funds removed from your bank account up to ten days is much more detrimental than having some of your credit limit diminished temporarily with no obligation to pay. 

I should point out that certain payment networks offer better guarantees when it comes to replacing your funds. For example, Visa’s Zero Liability Policy requires banks to replace funds taken fraudulently from your account within five business days of notification but this doesn’t apply to certain commercial card and prepaid card transactions.

More reasons to use a credit card over a debit card

Purchase protections

One area where debit cards typically cannot compete with credit cards is when it comes to things like purchase protections. Credit cards often provide you with valuable protections after you buy something that can end up saving you a lot of money.

Purchase protection

If your purchase is lost or damaged within a couple of months of the purchase date, you can often get reimbursed for that amount. For example, the Sapphire Reserve purchase protection offers up to $10,000 in coverage for up to 120 days after your purchase.

Return protection

Return protection allows you to get reimbursed for an eligible item that a store will no longer allow you to return. In many cases, this acts as an extension of the return policy’s deadline. 

Price protection

Price protection will reimburse you for the increase in the price that occurs after you purchase it and within a certain window of time. So if you purchased a TV for $2,000 and it dropped down to $1,700, you could be entitled to recover the $300 difference. (Many price protections on credit cards have been eliminated or reduced in coverage.)

Extended warranty protection

Extended warranty protection will add a year or two onto the manufacturer’s warranty.

Cell phone protection

More credit cards are now offering special cell phone protection that reimburses you for damage to your phone. Usually, all you have to do is pay a deductible and use your credit card to pay your phone bill and you trigger the coverage.

As you can probably guess, all of these protections can offer you thousands of dollars of potential savings and value.

And that is not even factoring in all of the travel protections that many cards have as well. With benefits like rental car insurance and trip cancellation and delay protections, credit cards can save you tons of worry and stress in addition to just extra money.

So from a protection standpoint, credit cards often blow away debit cards.

Rewards

Most credit cards come with much better rewards than debit cards.

With credit cards, it’s easy to get 1.5% or 2% cashback with many cards that don’t even have an annual fee. And then there are the travel cards that earn high multipliers like 4X on dining and allow you to rack up some serious value with your spending.

Many debit cards don’t even come with any rewards.

But you can find some that offer some pretty cool perks. For example, the Disney debit card from Chase can offer some cool discounts and special perks that you can take advantage of when visiting Disneyland or Disney World. 

Better spend the flexibility

Have you ever checked into a fancy hotel and have them tell you that they are putting a huge hold on your card during your stay? Or perhaps, you have an expense come up that requires you to dip further into your wallet than you initially anticipated.

When you have access to a fair amount of credit via your credit cards, these instances do not affect your financial life as much. You can have greater flexibility with your spending, especially with charge cards that have no preset spend limit. 

Building up your credit

A lot of people out there don’t realize that opening up a few credit cards can provide a huge boost to their credit score.

Simply by getting approved for a couple of cards and making on-time payments while keeping utilization at a minimum over a period of a few years, can greatly increase your credit score and allow you to get approved for a better mortgage rates, car loans, etc. 

If you simply rely on debit cards instead of venturing into credit cards, you might never build up your credit score in a way that could benefit your life much better.

When a debit card is better than a credit card

There are a couple of instances where I could see a debit card being better for someone than using a credit card and here they are. 

Risk of overspending

If you are somebody who struggles with overspending then a credit card can be less safe in the sense that it could lead you to make horrible financial decisions that could ruin your credit.

With a debit card, if you don’t have money in your bank account, in many cases your purchase will not go through. This typically limits you to purchasing items that you actually can afford.

But of course if you have access to credit then you can purchase items that you don’t have enough money to immediately pay off. This could lead to huge interest payments over time and cause you to remain in debt. 

For some people, this temptation is too real and it’s why, financially speaking, a debit card could be safer than a credit card.

Getting cash

Debit cards can also be considered safer in the sense that you can pull cash out by using them. Many times, especially when traveling, instances come up where you really need to have some cash on hand.

Credit cards can provide you with cash by utilizing the cash advance feature but you will have to pay high fees and interest on those transactions so it is generally not recommended.

On the other hand, many credit cards come with no foreign transaction fees and so by putting a simple travel notice on your credit card, they can be great to use when going abroad.

Final word

Credit cards offer superior advantages over debit cards because they have better liability protection that is less restrictive, they don’t pose a risk of going without funds in your bank account for up to 10 business days, and because they offer much better protections and benefits.

The only advantage that debit cards have over credit cards is that they typically can keep you from overspending which is a real concern for many people. But outside of that, credit cards will be superior in nearly every way.