Now more and more consumers are reaching for their debit and credit cards when making a purchase. As the Millennial and Gen Z generations lead the way to a cash-less future, it is important to understand what is happening behind the scenes when you use a credit or debit card.
Credit Card Transactions
A credit card is issued by a bank with a limit set in order to control your spending. You are free to use a credit card to make purchases and cash withdrawals (at a steep cost) up to the amount of your limit, but at the end of each month, you are required to pay at least a minimum payment. What you really want to do is pay off the balance in full every month. This allows you to build credit (typically needed for future large purchases like a home or car) while remaining debt free. If you are unable pay off the balance each month, interest will start to accumulate on the outstanding amount, and you can begin the slippery slope of debt.
Debit Card Transactions
A debit card is issued by your bank usually at the time you open a checking account. Whenever you choose to use your debit card, money will be instantly taken out of your account. It is important to limit your debit card spending and cash withdrawals to the amount of money you have in your account, or you might run into overdraft fees.
Understand the difference between “credit” or “debit” when making an in-store purchase with your debit card.
There are two ways a debit card can be processed at the time of a purchase. The first option is called the “debit/online/PIN debit” method, where you enter you PIN at the point of sale and the funds are immediately debited from your account. You have to use the debit function if you want to receive cash back during your transaction.
The second option is called the “credit/offline/signature debit” method, where you select the “credit” button, sending the transaction through the credit card processing network. A hold is placed on the money for the transaction in your account, which clears or processes in a day or two. Note, when you are using your debit card for online purchases, your card will automatically run as a credit transaction.
Don’t miss out on rewards, just because you’ve decided to use your debit card.
Some checking accounts issue debit cards with cash back rewards, a safer way to spend money you have while still getting extra benefits. Our rewards offers cash back when you choose the “credit/offline/signature debit” method, meaning you run your debit card as a credit card. Although this changes nothing for the consumer, this will allow you to enjoy the cash back benefits at the end of the month. We offer 1% cash back is available for any other type of purchases.1 At the end of each month, our debit card users receive a monthly update on how much cash back they received.
1 The Debit Card Rewards Program (Cash Back Rewards) will provide 1.00% cash-back on all Qualified Purchases made by eligible Rewards Checking account holders if the account holder does any of the following; meet the requirements, is grandfathered in, or keeps an average balance of $2,500 or greater within the calendar month in their Rewards Checking Account, or receives total deposits of $2,500 or more in their Rewards Checking account via qualifying Direct Deposit within the month. Qualifying Direct Deposits are Automated Clearing House (ACH) credits, which may include payroll, pension or government payments (such as Social Security) by your employer, or an outside agency. LendingClub Bank, N.A. may require documentation to verify that credits are Qualifying Direct Deposits. The value of this reward may constitute taxable income to you. You may be issued an Internal Revenue Service Form 1099 (or other appropriate form) to you that reflects the value of such reward. Please consult your tax adviser, as LendingClub Bank, N.A. does not provide tax advice. Qualified Purchases include signature-based purchases made with a LendingClub Bank Debit Card tied to a Rewards Checking account enrolled in the Debit Card Rewards program. These are “credit” purchases that can be made in stores and online. To make a signature-based purchase, select “credit” rather than debit at point-of-sale kiosks. The “credit” option is most often pre-selected when making purchases online using a debit card. Online subscription payments may not be considered signature-based purchases. The payment transaction type (signature-based or other) is ultimately decided by the merchant and how the transaction is transmitted to LendingClub Bank, N.A. at the time of processing. We reserve the right to determine if a transaction was a Qualified Purchase, and to establish additional types of Qualified Purchases that could be made available in a variety of ways. Any goods or services purchased with the LendingClub Bank Debit Card that are returned or otherwise credited to your Account are not qualified purchases. Unlawful purchases and purchases of currency, cash or cash equivalents (including, without limitation, currency from the U.S. Mint, Travelers Cheques, gift cards, Cryptocurrency, Casino Chips, Peer to Peer Payments, prepaid debit cards, account openings, loan payments, or other cash equivalents) made with your LendingClub Bank Debit Card are not Qualified Purchases. We may require you to provide documentation to validate that certain purchases are Qualified Purchases. LendingClub Bank, N.A. reserves the right to modify or discontinue this program at any time. Your enrolled account must remain open, active, and in good standing to participate in the program, meaning: No NSF (non-sufficient funds) items during the preceding twelve calendar months in your checking account (regardless of the type of checking account). An eFunds check must show no negative history in the preceding twelve months and all monthly servicing fees must have been paid in full for the 12 preceding months. LendingClub Bank, N.A. reserves the right to modify the description of “good standing” at any time. If you or the Bank closes your account for any reason before the end of the statement cycle, you will forfeit all rewards accrued through your linked Debit Card during that statement cycle.