Purchase Options for Consumers

When you make a purchase...should you use cash, check, a credit card, debit card, your computer or an automatic payment?

Each payment method has advantages and disadvantages. When you buy something, merchants often offer several different ways to pay. Which way is best? To make a good decision, it's important to think about your options.

• Cash
• Check
• Credit Cards
• Debit Cards
• Personal Computer
• Automated Transactions
• Reporting Unauthorized Transactions
• Final Tips

Cash

Cash is almost always accepted, but consider:

• Do you have enough cash to pay for your purchase as well as any other things you might have to pay for in the near future, such as a quick meal or an unexpected purchase? If not, more cash is available from an Automatic Teller Machine (ATM), but is there a service charge for using an ATM?
• Are you losing an opportunity to earn interest by carrying too much cash? The more cash you carry, the less that can be deposited in a financial institution in an interest bearing account.
• Is there a possibility you'll return the item you're buying? Will you be able to return it and get cash back, or will you be able to get only a store credit? Will you use the store credit?
• Does your purchase need to be delivered? Do you want to pay in cash for something you haven't received yet? What if the item is damaged in transit, and you've already paid for it? How will you get your money back? It is generally more difficult to get a cash refund, even if you have a receipt.

In general, it's wise not to carry large amounts of cash because of the risk of loss or theft. Use cash only for those items that you'll either use immediately or take with you.

Check

Checks are another payment option. A check represents money but is not cash. It's a piece of paper the check writer uses to instruct his or her financial institution to release funds. With proper identification, you can open a checking account at most financial institutions. Checks are reliable and convenient for most transactions. Using them frees you from the risk of carrying large sums of cash. However, you may want to consider the following:

• Checking accounts often have fees, minimum balance requirements or a limit on how many checks you can write each month. Therefore, you may not want to write checks for small amounts unless you're mailing a payment.
• If mailing a payment, sending a check is acceptable, but mailing cash can be risky. Cash lost in transit can't be replaced, while a lost check can be.
• Paying with a check through the mail provides proof of payment because the recipient must endorse the check to cash it or deposit it.
• Not everyone is willing to accept checks because they're sometimes returned for reasons such as insufficient funds in the checking account. Merchants are sometimes reluctant to accept a check because they can't be sure it will not be returned.
• There is usually only a day or two between when a merchant receives your check and when the funds in the checking account are actually deducted for payment. Funds in your checking account continue to earn interest during this time. Debit cards and other types of electronic payments are deducted immediately.

Credit Cards

Credit cards and charge cards can be a convenient, efficient and reliable payment method. Actually, they allow the buyer to defer payment. Credit cards are more readily acceptable than checks because the merchant's bank guarantees payment to the merchant. Payment is made when you write a check to the card issuer. If you want to use a credit card to make payments and pay bills there are a number of things you should consider:

• You may have to pay an annual fee to use a credit card.
• Credit cards are more readily acceptable than checks. Sometimes they are the only option acceptable.
• If you want to return a purchase, credit card issuers frequently have procedures to facilitate the return.
• Since merchants pay a fee for each credit card transaction processed, they may not want to accept payment using a credit card under a certain dollar amount.
• When you pay with a credit card, you're actually receiving a short-term loan to make the purchase. Unless you pay your credit card bill in full a short time after the bill is received, you'll have to pay an interest charge in addition to the cost of your purchase.The period between when you receive your bill and when the payment is due is usually referred to as the "grace period". Grace periods are generally 14-20 days, but can be up to 30 days. Although many card issuers offer a grace period, not all credit card issuers do. Check the terms of your card to be sure.
• With low minimum payments and high interest rates, credit card and interest payments can extend over long periods of time - sometimes over many years.
• Purchases are conveniently summarized in a monthly statement.
• Credit cards can be too convenient to use. Unless you keep track of your charges, you can quickly owe more money than you can afford.
• Some credit cards offer incentives such as cash back, shopping discounts, rental cars or airline trips based on how much is charged. These benefits should be weighed against other factors, such as the annual fee and the interest rate charged when you don't pay your bill on time or pay only a portion of your bill.
• If your credit card is stolen or used by an unauthorized user your liability should be no more than $50 if you report the unauthorized transactions to your financial institutions.

Debit Cards

A debit card looks like a credit card but functions differently. It's used to take money out of your checking account at the time of sale. The transaction is similar to writing a check or using a credit card, except using a debit card removes funds from your checking account immediately. When using a debit card, consider the following:

• Because your checking account will be automatically debited, you have to make sure you subtract the right amount from your checking account balance.
• Before you use the debit card, consider how much money is in your checking account and what other expenses (rent, mortgage, utilities, other monthly payments, etc.) you have.
• Unlike a credit card, if your debit card is stolen or used by an unauthorized user, you could be held liable for the entire amount of the loss unless you report the unauthorized transactions to your financial institutions within 60 days of receiving your statement. Also, unlike credit cards, the money has already been deducted from your account. Your money is gone and to get it back you must be able to prove that the transactions were unauthorized. Additionally, your checks may be returned for non- sufficient funds before you receive your next statement because all the money in your account was removed by the unauthorized user.
• Unlike a check, you can't stop an electronic debit once it has been authorized because funds are removed immediately from your account. And unlike a check, there is no lag time between when funds are deducted from your account. And unlike a check, there is no lag time between when payment is made and when funds are deducted from your account.
• If you return the item, can you get cash back or will you be able to get only a store credit? As with cash, if only a credit is available for returns you may want to use another means of payment if you don't think you'll be able to use a store credit.
• Debit cards should not be used for pre-authorized, recurring payments such as insurance premiums or health club dues. Doing so can lead to problems later if you want to cancel your authorization. Safer methods of direct payment are available via your financial institution.

Personal Computer

Paying your bills using your personal computer can be fun and easy. More and more financial institutions offer this type of "home banking" over the Internet. Using your computer to pay bills usually functions the same way as using any electronic means to make a payment-an electronic debit is made to your account. Using your home computer to pay bills is just like using your debit card because the amount of the payment is deducted directly from your account, and there is no lag time or float between when the payment is made and when funds are deducted. When you pay bills online, it is important that you make sure your transactions are secure, and that your personal information is protected. Here are some precautions you may want to consider when making payments online:

• Keep personal information - address, telephone number, social security number, and account numbers or e-mail address-private. It is not recommended that you provide this information unless you've initiated the transaction. Don't disclose your personal information unless you know who's collecting the information, why they're collecting it, and how they'll use it.
• Give payment information only to businesses you know and trust, and only in appropriate places like order forms.
• Never give your password to anyone online, even your Internet service provider.
• Protect your account numbers and personal information by using software that encrypts or scrambles the purchase information you send over the Internet.
• Create and keep records of your online transactions just as you do for your credit and debit card transactions. Review your periodic bank and credit card statements for any billing errors or unauthorized purchases. Notify your credit card issuer or bank immediately if you find any discrepancies.
• Read the policies of Web sites you frequent and especially the disclosures about their security, refund policies, and privacy policy on collecting and using your personal information.

Automated Transactions

Direct Payment is a safe, reliable service that allows you to pay your bills automatically. With Direct Payment, you authorize a company to deduct money from your checking or savings account in order to pay a monthly bill.

Direct Payment transactions are generally prearranged or recurring payments, such as monthly utilities, insurance premiums, and mortgage payments.

Automated transactions can also be credits or deposits to your account. Many people work for companies that use Direct Deposit to automatically deposit pay into their employees' checking or savings accounts instead of distributing checks on payday. Direct Deposit of Social Security benefits, expense reimbursements, and pension benefits are other examples of automated credit transactions.

Direct Payment and Direct Deposit transactions flow through the Automated Clearing House (ACH) payments network. The ACH network is more than 25-years-old and is an established network responsible for transferring billions of dollars each day between financial institutions. You can learn more about Direct Payment or Direct Deposit by visiting the following sites:

DirectDeposit.org - operated by the Direct Deposit and Direct Payment Coalition.

Report Unauthorized Transactions Immediately

Whether you use a credit card, a debit card, a personal computer or ACH, the transaction is electronic and is governed by the Electronic Funds Transfer Act, or Regulation E. The regulation includes procedures for resolving errors and provides limited liability for unauthorized transactions. Send written notices by certified mail, return receipts requested, and keep a copy of your letter for your own files. However, be aware that liability for credit cards is different than electronic debit transactions. Your maximum liability on a credit card is $50. On an electronic debit, unless you contact your financial institution within 60 days of receipt of your statement, there may be no limit to your liability for unauthorized transactions. Additionally, before you receive your next statement, your checks may be returned for non- sufficient funds.

Final Tips

• Since debit cards and credit cards look the same, be sure you know which one you're using when making a transaction.
• Consumer liability on a credit card is generally limited to $50. Be sure to report a lost or stolen credit card immediately to prevent its misuse.
• Under certain conditions, consumer liability on a debit card can be unlimited.
• Save your receipts for transactions made with credit cards or debit cards. Review your statement regularly and report discrepancies at once.
• Do not download files sent to you by strangers or click on hyperlinks from people you don't know. Opening a file could expose your system to a computer virus.