They're little plastic cards with embossed account information and magnetic strips. They have similar logos and work the same when swiped through a card reader. Modern consumers may think there's no significant difference between using credit cards and debit cards anymore, but in fact there are important differences that should determine when, and how, these cards are used in the modern marketplace.

*Whose Money Is it?

When a debit card is used to make a purchase, the funds are taken out of the bank account linked to the card. It may happen right away or it may take several days, but the money is in the possession of the consumer - or rather, the consumer's bank - until the transaction is completed. Using a credit card is more like taking out a small loan to make a purchase or pay a bill. The money is sourced through a financial institution and loaned to the holder of the card, who is expected to pay it back, with interest, in a specified time.

Because a purchase made on a debit card is sourced through the consumer's bank account, the consumer assumes some of the responsibility for fraudulent use of the card. The consumer is required to notice and report the unauthorized use within two days. The liability for the transaction in these cases is limited to $50. If the suspicious activity is not noticed for several days, the consumer's liability increases to $500. If it's longer than a week, the card holder may have no protection at all.

Contrast this to a fraudulent transaction made on a credit account, where the source of the funds is a major financial institution. The Fair Credit Billing Act covers all credit card purchases and states plainly that the consumer using a credit card has no liability for unauthorized transactions, damaged goods, or for orders that were not delivered.

The takeaway? Consumer protection for debit card purchases relies on the policies of the bank in question. For credit cards, a consumer's protection is guaranteed by state and federal law.

*Watch for the Fees

Debit and credit cards differ in the fees charged for their use. Banks have traditionally allowed fee-free debit card use and only charged for the privilege when the consumer overdraws the account. Known as "overdraft protection," these fees range from $26 to $38 per item. The consumer assumes the liability for his or her own money, as a single mistake in arithmetic can cost hundreds of dollars in overdraft fees.

All banks must now offer consumers the choice to opt out of overdraft protection. Without it, transactions for which the account has insufficient funds are declined at the payment terminal. Though potentially embarrassing, opting out of this program may save consumers hundreds of dollars every year.

Credit card fees paid by the card holder are listed in the contract and there is no "opt-out" choice. These include over-limit fees, late payment fees, and cash withdrawal fees. Credit card processing fees are sometimes charged by utility companies or collection agencies. Some merchants are now passing the cost of credit card transactions on to the consumer. In theory this is prohibited by law, but in practice the fees are concealed under other names.

*The Rewards of Credit

A major reason for using credit cards to make purchases is the rewards program that many credit institutions offer. These rewards are accrued through using the card. Each purchase rewards the holder with points, air miles, instant rebates on the purchase, or cash back at the end of the year. The rewards help offset the cost of associated fees and the interest that accrues on the debt.

*Differences Aren't Always What They Seem

The line between debit cards and credit cards isn't clearly delineated. Most debit cards bear the Visa or MasterCard logo and can be used as credit cards at a payment terminal. The money for the transaction is still the consumer's, but the process is backed by the lending institution. Additionally, credit cards can be purchased at most major retailers and "loaded" with a balance that comes from the consumer's own funds.

No matter how blurry the differences become, remembering where the money is sourced is one sure way to determine if the transaction is debit-based or credit-based.