The Best Ways to Pay Online Why a credit card should always be your payment of choice when you shop on the Internet, plus how to protect yourself from fraud when a credit card's not an option
By Andrea Bennett

(MONEY Magazine) – You've found what you want to buy on the Internet. Now how will you pay? The obvious choice is a credit card, but seemingly every day a new online-payment option appears. In particular, so-called person-to-person services--which let you e-mail cash--are proliferating on the Net, especially at auction sites and the online storefronts of small businesses.

For all the new flavors of online payments, though, we think credit cards are still your best bet. Why? If your card number is stolen, you likely won't owe a cent. By law, you're not responsible for more than $50 in fraudulent charges, and this year Visa and MasterCard introduced zero liability on all of their credit and debit cards. Historically, American Express hasn't made you pay the $50. With a credit card, you also have the legal right to dispute a charge--and ask the card company to act as intermediary--if what you buy is defective or never arrives. (If you use a debit card, you'll miss out on some credit-card protections. For instance, your bank isn't obligated to help you with a merchant dispute.)

In addition, many credit-card issuers have added attractive incentives to get you to use their card on the Net. Pay with any American Express card online, for instance, and you're protected against loss or theft for 90 days (with a $50,000 annual limit per account). If the site doesn't accept returns, in many cases AmEx will refund your money, up to $300 an item and $1,000 per account. The company also doubles the length of the manufacturer's warranty. Several Visa or MasterCard issuers, such as Capital One (www.capitalone.com), have similar promotions. The Webmiles MasterCard (www.webmiles.com) guarantees that if you buy something with the card and the merchant lowers the price within three months, they'll refund the difference.

If you shop at an auction or at a website run by a small business, you may not have the option to pay by credit card. To fill that void, person-to-person payment services such as PayPal, PayMe.com, Western Union MoneyZap and eMoneyMail have popped up. With these services, which eliminate the need to mail a paper check, you in effect e-mail money using a credit card or bank account.

But what happens if you're unhappy with what you bought? Or, worse, the product never arrives? Unfortunately, this payment method is so new that there are no hard-and-fast rules. Some e-mail services are beginning to add fraud protections. As of Aug. 1, PayPal (www.paypal.com) will refund your money (with a $5,000 annual limit) if something you paid for never arrives. Western Union (www.moneyzap.com) plans to roll out fraud protections this year but has yet to announce the details. Although you can fund your payment with a credit card at these sites, doing so probably won't help you if the product never arrives. In the eyes of the credit-card company, your transaction was with the payment website, not the merchant.

Finally, no matter how you pay, the major auction sites can be an ally. Ebay automatically insures every sale against fraud, with a $200 limit and a $25 deductible; Amazon.com's auction site covers you for up to $250. If you are spending significantly more, consider using an escrow service like www.iescrow.com or www.escrow.com. For a fee of about 5%, both act as clearinghouses, holding your payment until it clears and guaranteeing the seller's product.

--ANDREA BENNETT