Credit Cards and Debit Cards allow bank customers to spend money by drawing on funds they have deposited at the bank. Credit cards allow consumers to borrow money from the card issuer up to a certain limit in order to purchase items or withdraw cash.
Difference Between a Debit Card and a Credit Card
- What are Credit Cards
- What are Debit Cards
- How Credit Cards Work
- How Debit Cards Work
- Debit Card Benefits
- Credit Cards Benefits
What are Credit Cards
A credit card is a card issued by a financial institution, typically a bank, and it enables the cardholder to borrow funds from that institution. Cardholders agree to pay the money back, with interest, according to the institution’s terms.
What are Debit Cards
A debit card is a payment card that makes payments by deducting money directly from a consumer’s checking account, rather than via a loan from a bank. Debit cards offer the convenience of credit cards and many of the same consumer protections when issued by major payment processors like Visa or MasterCard.
How Debit Cards Work
Your debit card is basically like a plastic check: When you make a purchase, it takes the money directly out of your bank account. So, if you try to spend $500 but only have $250 in your account, your transaction will be declined.
Because the money is taken from your account as soon as you swipe, you won’t get a bill and you won’t pay interest. You might, however, face overdraft fees if you spend more money than is in your account.
Debit cards also work as ATM cards, allowing you to take cash directly out of your bank account.
How Credit Cards Work
Your credit card, on the other hand, is like a loan: When you open a credit card, you’re approved for a certain line of credit.
Also known as a credit limit, a line of credit is how much you can spend before your card is “maxed out” and can no longer be used for purchases. Your credit limit is based on your credit history and income; the stronger those are, the more the financial institution trusts you, and the higher your credit limit will be.
Each month, you’ll get a bill for the amount you spent. Though you’re only required to cover the minimum payment (and not the whole balance) by the due date, you’ll pay interest on whatever amount remains. Because credit card interest rates are usually very high, we recommend paying your bill in full each month to avoid interest fees completely.
Debit Card credit cards Benefits
The Debit Card Benefits:
- Avoid fees and service charges.
- Stay accountable for your spending.
- Faster payments mean better budgeting.
- No interest charges.
- Debit cards are linked to interest-earning accounts.
- Bank and Merchant Rewards.
- Lower fees for tax payments with credit cards.
The Credit Card Benefits:
- Opportunity to build credit.
- Earn rewards such as cashback or miles points.
- Protection against credit card fraud.
- Free credit score information.
- No foreign transaction fees.
- Increased purchasing power.
- Not linked to checking or savings account