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Should I use the debit or credit option?

What you select at checkout can affect how your money's handled behind the scenes.

Picture yourself at the retail counter after a big shopping spree. Your must-haves are scanned, your wallet is in hand and the clerk’s voice rings out: “Credit or debit?”

Each results in you going home with your goods. But what happens to your money after your transaction — and is one option better than the other for your finances?

What’s the difference between the credit and debit options?

Most point-of-sale terminals offer two options before processing your payment. Let’s look at what happens when you select each after swiping or inserting your chip card:

  • Credit. After swiping your credit card, you’ll have to sign for your purchase. Alternatively, if your card has a chip, you can insert it into the terminal’s chip reader and enter your pin number. When you enter a pin, you usually won’t have to sign the receipt. Your transaction is processed through the network on your card — typically Visa or Mastercard, and your merchant pays a fee equal to a percentage of your transaction. Your purchase is added to your card’s monthly statement.
  • Debit. You enter your 4- or 6-digit PIN number, and your transaction is processed through a payment processor system like Moneris. Your merchant will also pay a fee for debit transactions. The amount of your purchase is deducted from the chequing or savings account associated with your card.

What happens when I make a contactless payment?

Contactless pay technology allows you to make quick, tap-and-go payments of up to $100-$250. But which account is the money drawn from when you tap your card?

If your contactless card is a credit card, the funds are drawn from your credit card account. If your contactless card is a debit card, money to pay for your purchase comes from the bank account linked to your card. If you have multiple accounts linked to your debit card and are unsure where funds are drawn from for a purchase, contact your bank.

Does my choice matter?

In short, yes. With a debit card, you’ll spend money on your purchase immediately. Whereas, a credit card allows you to pay for it later and potentially earn reward points – but you could end up paying extra due to interest charges.

When debit might be better

If you’re trying to stick to a budget, running your transaction as a debit might help. Your purchase is immediately withdrawn from your bank account, eliminating the risk of missing a statement and accruing interest on your purchase. You also typically have the option to withdraw cashback for extra pocket money.

Does it take longer to process a debit or credit card payment?

Debit card transactions are processed through various processing networks, and are deducted from your account immediately.

On the other hand, credit purchases are are processed directly through the credit card company, like Visa or Mastercard, and are considered “pending” until the retailer processes their credit payments in bulk. Some retailers will process credit card payments at the end of every business day, while others will process payments once a week. Because of that, credit card payments tend to take longer than debit transactions to be fully processed and appear on your statement.

When credit might be better

Many credit cards come with reward points or other perks. For big purchases, like a TV or mattress, running your transaction as a credit could unlock those rewards, purchase protections and other perks offered by your card provider.

The big downside to using a credit card is the temptation to not pay the balance immediately. If you end up carrying a balance over a few months, you’ll pay more money than the amount of your purchase because of additional interest charges.

Disputing fraudulent charges is easier when they’re credit transactions. When you pay using your credit card, you get the security benefits of Visa or Mastercard that makes it easy to get your money back if there’s a problem with the transaction, like if your transaction is processed multiple times or you don’t receive the goods you pay for.

Chargeback protection is also available on debit cards. But since credit card information can sometimes be easier to steal and use for big price tag purchases, credit cards often have additional purchase protection features.

Compare apps that reward you for your spending

Name Product Reward Fees Participating Brands Min. to Cash Out
Ampli
1-10% cash back, or a set $ amount
$0
50+
$15
Link your debit and credit cards to the Ampli app and earn cash back at 50+ big retailers across Canada. Enter promo code AMPLI5 to receive a $5.00 cash back bonus on signup.
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Weigh the pros and cons

OptionProsCons
Credit
  • Pay for purchases on credit without worrying that your account doesn’t contain sufficient funds.
  • Take advantage of you provider’s purchase protection.
  • Bank and providers typically monitor your card for suspicious activity or fraud.
  • A credit card surcharge may apply to your transaction.
  • The merchant may impose a minimum transaction amount.
  • You must pay your card statement on time to avoid interest on your purchase.
  • Transactions aren’t processed immediately, which can be frustrating if you need a quick turnaround.
Debit
  • Transactions are processed immediately.
  • If your account doesn’t include sufficient funds, the transaction is canceled — which can keep you from going into debt.
  • Because you pay with your own money, you aren’t at risk of paying interest on your debt.
  • If your account doesn’t contain sufficient funds, you aren’t able to complete the purchase.
  • You may not enjoy the same level of fraud protection as offered on credit purchases.

Compare credit cards and chequing accounts with debit cards

After weighing the pros and cons of your debit and credit options, and depending on your spending habits, you may be reconsidering your go-to payment method. Check out the options below for chequing accounts with linked debit cards, or browse through a selection of credit cards, to find the right option for your needs.

Name Product Interest Rate Account Fee Debit Transactions Interac e-Transfer Transactions
Scotiabank Preferred Package
0%
$16.95 per month ($0 if requirements met)
unlimited
unlimited
Earn a $300 welcome bonus. Plus, for a limited time, earn up to 1.75% on your MomentumPLUS Savings Account.
Scotiabank Ultimate Package
0%
$30.95 per month ($0 if requirements met)
unlimited
unlimited
Earn a $300 welcome bonus. Plus, for a limited time, earn up to 1.80% on your MomentumPLUS Savings Account.
Scotiabank Basic Plus Bank Account
0%
$11.95 per month ($0 if requirements met)
25 free per month
Free
Pay no monthly account fee by maintaining a minimum daily closing balance of $3,000 for the entire month.
Scotiabank Student Banking Advantage Plan
0%
$0
unlimited
unlimited
Sign up today and get up to 5,000 SCENE or Scotia Rewards Points. Terms apply. Apply by October 31, 2021.
Scotiabank Basic Bank Account
0%
$3.95 per month
12 free per month
Free
With a low monthly account fee, you can choose between earning points toward the SCENE or Scotia Rewards reward programs.
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Name Product Welcome Offer Rewards Purchase Interest Rate Annual Fee Min. Credit Score Description
HSBC +Rewards™ Mastercard®
20,000 Points
2x points per $1 spent
11.9%
$0 annual fee for the first year ($25 thereafter)
Min. recommended credit score: 630
Get 20,000 Points (up to $100 in value), plus get a 1st year annual fee waiver. Apply by September 27, 2021.
BMO CashBack Mastercard
5% cash back
Up to 3% cash back
19.99%
$0
Min. recommended credit score: 660
Get 5% cash back on all eligible purchases in the first three months of card membership (up to max. spend of $2,000). Plus, get a rate of 1.99% on balance transfers with a 1% balance transfer fee for nine months.
Tangerine World Mastercard
10% cash back
Up to 2% cash back
19.95%
$0
Min. recommended credit score: 680
Earn an extra 10% cash back (up to $100) when you spend $1,000 on everyday purchases within the first 2 months. Until August 16, 2021. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening).
BMO Preferred Rate Mastercard
3.99% rate on balance transfers for 9 months
N/A
12.99%
$20
Min. recommended credit score: 660
Get a rate of 3.99% on balance transfers for 9 months with a 1% transfer fee. Plus, get the $20 annual fee waived in the first year.
American Express Cobalt Card
30,000 points
Up to 5 points per $1 spent
19.99%
$120
Min. recommended credit score: 700
Earn up to 30,000 bonus Membership Rewards points in your first year as a new Cobalt Cardmember.
Brim Mastercard
Up to $200 worth of bonuses
1 point per $1 spent
19.99%
$0
Min. recommended credit score: 700
Earn up to $200 worth of bonus points when you shop with Brim retailers for the first time through the Brim mobile app.
Tangerine Money-Back Credit Card
10% cash back
Up to 2% cash back
19.95%
$0
Min. recommended credit score: 680
Earn an extra 10% cash back (up to $100) when you spend $1,000 on everyday purchases within the first 2 months. Until August 16, 2021. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening).
SimplyCash Card from American Express
4% cash back
Up to 1.25% cash back
19.99%
$0
Min. recommended credit score: 700
Earn 4% cash back on purchases (up to $200 cash back) for the first 6 months of Cardmembership.
Choice Card from American Express
10,000 points
1 point per $1 spent
19.99%
$0
Min. recommended credit score: 700
Earn 10,000 Bonus Membership Rewards points within the first 3 months as a new Cardmember.
BMO Rewards Mastercard
10,000 points
Up to 2 points per $1 spent
19.99%
$0
Min. recommended credit score: 725
Get a bonus of 10,000 BMO Rewards points when you spend $1,000 in the first 3 months. Apply by October 31, 2021 . Plus, get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
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Bottom line

The difference between the credit or debit option ultimately involves what happens behind the scenes. Each method pays for your purchase, but one results in a fast withdrawal from your bank account and the other as a line item on your monthly credit card statement.

It comes down to how much control and protection you want on your purchases.

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