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Why a debit card may not be the smartest choice for online shopping

When cybersecurity expert Jennifer Fiddian-Green pays with plastic, it's always a credit card and never a debit card.

Ms. Fiddian-Green is a forensic accountant at Grant Thornton LLP who investigates fraud. About 10 years ago, she was the victim of an identity theft that involved mortgage fraud. She's thought a lot about how best to protect herself from the impact of fraud, and credit cards are her choice. "I'm more comfortable with my credit card being compromised because the system is better set up to handle that."

With the busiest shopping season of the year now at hand, we're going to be thinking a lot about how best to pay for our purchases. Cash presents no fraud risk, but it's not ideal to carry a roll of bills around and then flash it when paying for things in a busy store.

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That leaves credit cards, with their reward points, and debit cards, with their very appealing immediacy in that the money comes out of your account right away.

Ms. Fiddian-Green isn't faulting the banks for the fraud risks in paying for purchases electronically. She's just realistic about the fact that such events occur, even if they're rare, and that anyone can be victimized. If it were to happen to her, she'd prefer it to be on a credit card transaction.

If she finds an unauthorized purchase on her credit card statement, she can contact her card company to explain what happened and get the charge removed.

She's never out any money because, if she's vigilant, the issue can be resolved before the due date for her monthly card payment.

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With a debit card, a fraud is only noticed when money is missing. "Because of what I do, I've had so many people call me and say things like, 'there was a $3,000 charge that went through my account in debit card charges. Yes, I got the money back, but it took over two and half weeks.' That period without access to that money really matters to some people."

To be clear, the fraud risk Ms. Fiddian-Green is protecting herself from by using a credit card is one of inconvenience, not of taking a financial hit.

Interac offers this promise to users of its electronic payments network: "You will not be liable for losses resulting from circumstances beyond your reasonable control when using Interac Debit, Interac Flash, cross-border debit and Interac Online service. This includes losses resulting from technical errors, system problems or fraud."

Interac says fraudulent transactions on its network amounted to $11.8-million in 2015, just 0.005 per cent of the $347-billion total.

As for credit cards, the federal Financial Consumer Agency of Canada says that Visa and MasterCard have zero liability policies in case of unauthorized transactions, while American Express has a fraud protection guarantee.

You're not protected against unauthorized transactions if you have showed someone your login and personal identification number (PIN). So don't share with anyone – spouses or significant others. Bad break-ups can make people do stupid things.

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How can criminals get your card info if you're careful? The Canadian Bankers Association says debit fraud can happen when thieves "skim" the information off your card and catch your PIN, possibly by using a camera that records the numbers you key in.

Your personal information can also be snapped up when there's a data breach at a retailer or other place where you do business.

Interac has in the past used a smart marketing strategy where it promoted debit as a more responsible way to pay for things because the transaction is done immediately and there is no credit card bill to pay later.

Ms. Fiddian-Green said she's adamant about paying her credit card bill in full every month. If you can't trust yourself to do likewise, then the greater good is served by you using debit card – or cash – instead of credit.

The other benefit to using credit is that you can earn rewards – potentially tons of them if you pay for everything using your credit card.

Ms. Fiddian-Green herself uses a cashback credit card, but says her main motivation for using credit is to protect herself from the inconvenience of being a fraud victim.

"Everywhere I can, I use my credit card."

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About the Author
Personal Finance Columnist

Rob Carrick has been writing about personal finance, business and economics for close to 20 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998.Rob's personal finance columns appear in The Globe on Tuesday and Thursday, and his Portfolio Strategy column for investors appears on Saturday. More

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