When you pay for your purchases with your debit card in a store, be it Target or even a small retailer, often they will ask you, “Debit or Credit?” What they really mean is do you want to sign for your purchase or use a PIN? For the consumer, it’s all the same thing when the money comes out of your bank account.

But to retailers, there is a big difference. The difference comes in interchange fees, which are the fees paid by businesses to credit card companies every time you use your card. According to the New York Times, when you sign instead of using a PIN, the “store pays your bank an average of 75 cents for every $100 spent, more than twice as much as when you punch in a four-digit code.”

While this is not a fee that consumers pay directly (although it has been reported that some stores, and even banks, have started to pass along these fees) it clearly has an impact on the cost of the goodies you are buying. Michael Powell, owner of the Portland-based bookstore Powell’s, wrote an op-ed in the Oregonian lamenting these fees, saying that they cost his business more than advertising and electricity combined!

And it’s costing you too…. The National Retail Federation, the trade group for retailers, says the interchange fees for signature debit and credit card transactions cost households an average of $427 in 2008, which is definitely a chunk of change that you seemingly have no control over where it goes.

What is the difference to the consumer? While some say the PIN network is more secure (it is harder for a thief to get your PIN number than it is to forge your signature), your credit card company may also have guarantees against liability in the case of fraud whether signed or using a PIN. It’s not a bad idea to check with your bank or card company to see what you might be liable for in the case of fraudulent transactions.

No matter what, federal law will protect you from fraudulent PIN transactions – you are only liable for $50 if it is reported within two days or a maximum of $500 if it is reported within 60 days.

So what can you do? Know what protections you have, for starters. And if you want to save your retailer a few bucks, you can request to pay via debit with a PIN.

This blog entry was featured in Carnival of Personal Finance 246.