CREDIT OR DEBIT?

It's a familiar refrain whenever you pull out your bank card. On the surface, how you use your card doesn't seem to make much difference either way, the money comes directly out of your checking account. But the decision to enter your PIN and go the debit route or jot a signature and use it as a credit card is one that can have a lasting effect on your wallet.

For banks, "debit is the new credit," says Jean Ann Fox, director of consumer protection for the Consumer Federation of America, an advocacy organization. As a result, more banks are pushing customers to forgo their PIN for a pen. Their reasoning? Merchants pay a flat fee to process a debit transaction. Credit transaction fees, on the other hand, are a percentage usually 2.49% of the total transaction. "[Credit] is more profitable for the bank," says Fox.

If you must pay with your bank card, signing is hands down the better way to go. Here are two big reasons why:

Point-of-Sale Fees
Getting nickel-and-dimed seems like a good deal compared with point-of-sale fees essentially, a penalty banks charge you for entering your PIN to complete a transaction. Some banks will charge you 25 cents to 50 cents per transaction, while others assess a monthly fee of $1 to $2. Whether you'll pay a fee depends on where you live, the bank you use and even the kind of account you have. The American Bankers Association estimates 13% of consumers pay such fees. A 2004 study by the New York Public Interest Research Group, however, found that 89% of banks in the state charge them in one form or another.

So-called POS fees have been around for years, explains Scott Bilker, founder of DebtSmart.com. They've just become more prevalent as consumers begin using their cards for everyday purchases. "It's discouraging to pay extra for your stuff," says Bilker. "At that point, you might as well write a check."

Of the largest U.S. banks (see chart list below), only two charge POS fees. Wells Fargo assesses a $1 POS fee every month during which you use your PIN to make check-card purchases. U.S. Bancorp charges a 25-cent fee for every PIN purchase if you live in Colorado, Indiana, Kentucky or Ohio (no charge for Electronic Transfer Accounts or Student Checking).

Lackluster Rewards
4,000 points, Visa Extras, or even a hot-air balloon tour (25,000, Citi Thank You Network. But enter your PIN, and those points disappear. Racking up rewards takes much, much longer if you earn any at all.

Here's how the biggest U.S. banks handle rewards on their basic bank cards:

Losing out on rewards for a free program is bad enough, but you may get short-changed even if you're paying for the program. Be sure to read the fine print. The Continental Airlines debit card from Chase carries a $30 annual fee, but offers one mile per $2 spent no matter how you choose to complete the purchase. U.S. Bancorp, on the other hand, charges a $20 annual fee for its WorldPerks card, but only awards miles one for every $2 spent for signed purchases.