Debit card tip: PIN vs. signature at checkout

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I'm sure you've encountered the following question when swiping your debit card at a gas station or retail store: Which should you choose, "credit" or "debit?" The question might better be phrased as "PIN or signature?"

When you choose debit you enter a PIN. Your transaction is routed through an electronic funds transfer system, such as Star or NYCE, and is usually settled that day. When you choose credit you sign a receipt. The transaction is routed through the credit card processing network and may take a day or two to show up on your account.

If you have a rewards checking account, you will usually be required to sign in order to get points for your transaction. Choosing credit may also provide you with more of a paper trail. Dispute a charge and your bank will have to produce a signed copy of the receipt -- something it couldn't do for a PIN transaction.

Using a PIN, on the other hand, provides an extra layer of protection. Fraud costs on PIN-debit transactions were about one-tenth the costs of fraud incurred with signature debit in 2010, according to the Federal Reserve Bank of Atlanta.

And if you want cash back from the merchant, you'll need to use your PIN. It's not an option if you sign.

So are there fees associated with either of these methods? Not for the consumer. But the merchant does pay a much higher fee when you choose credit. So it makes sense that debit is often set as the default choice by merchants and you must physically opt out to choose credit.