chip credit card and reader
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You’ve been doing it for years: you swipe your credit card at a point-of-sale (POS) terminal to buy groceries or your favorite triple-shot iced soy latte, and then you sign a paper receipt.

But the cards they are a-changin’, and by now you’ve probably received new credits featuring chip technology. More secure than a swipe-and-sign cards, chip cards include technology that helps prevent identity theft.

While chip cards are more secure, payments infrastructure in the U.S. is still catching up with this new approach. That means many retailers and restaurants use a hybrid system that may be a bit confusing at first glance.

Chip-and-PIN cards versus chip-and-sign cards

Credit cards equipped with chip technology require users to insert a card into a POS terminal rather than swiping it. The terminal then reads the chip and encrypts your payment data, for added security.

In the U.S., most credit cards equipped with chips are “chip-and-sign” cards. You insert your card in to the POS terminal, and then sign a paper receipt, just like you always have.

Credit card issuers in most of the rest of the world have adopted chip-and-PIN system. You insert your card into the POS terminal, and then enter a PIN code. This step adds an additional layer of security to keep transaction data safe from thieves.

Debit cards equipped with chips issued in the U.S. work the same way as chip-and-PIN credit cards do in the rest of the world. A customer inserts her chip-equipped debit card in a POS terminal, and then enters her PIN code. 

How the chip works

The chip in a chip-and-PIN card is actually a microcomputer that stores your data and uses cryptography to protect your personal information. A chip-and-PIN card does not connect to your card issuer when authorizing a transaction. All of your information is present on the chip. A card with only a magnetic stripe must connect, either by phone or internet, with your card company. The chip keeps your information safely on the card, and does not broadcast data across the internet or phone line where savvy identity thieves might be lurking.

Where are chip-and-PIN credit cards accepted?

The payments technology installed at vendors and retailers across the U.S. is catching up. Today, most still use the chip-and-swipe approach. But more and more are beginning to adopt the chip-and-PIN approach, and eventually signing a paper receipt will join the payphone on the dust heap of history.

Old swipe-and-sign cards that lack a chip can cause problems abroad, where chip-and-PIN cards are nearly universal. Many foreign countries use the chip-and-PIN technology exclusively, and some POS units abroad can still process transactions made with swipe-only cards, if needed. But some cannot, so if you’re traveling abroad and you haven’t been updated to a chip card, now is the time to do so.

Use Bankrate’s calculator to figure out whether a balance transfer card would be right for you.

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