Credit Cards vs. Debit Cards

Credit cards and debit cards look almost similar, with 16-digit card numbers, expiration dates, and personal identification number (PIN) codes. But that is where the similarity ends. Debit cards allow bank customers to spend money by deducting money 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.

• Credit cards give you access to a line of debt issued by a bank. Debit cards deduct money directly from your bank account.
• Credit cards offer better consumer protection through warranties and fraud protection but are costlier.
• Debit cards offer less protection, but they have lower fees.
• Newer debit cards offer more credit-card-like protection, while many credit cards no longer charge annual fees.

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.

Credit card users can reap cash, discounts, travel points, and many other perks unavailable to debit card holders by using rewards cards. Consumers who pay off their cards in full and on time every month can profit substantially by running their monthly purchases and bills through rewards cards.

Debit Cards

A debit card is a payment card that makes payment by deducting money directly from a consumer’s account. Cards offer the convenience of credit cards and many of the same consumer protections when issued by major payment processors like Visa or MasterCard.

A debit card draws on money the user already has, eliminating the danger of racking up debt. Retailers know people usually spend more when using plastic than if they were paying cash. By using debit cards, impulsive spenders can avoid the temptation of credit.

In addition, some debit cards such as Visa or MasterCard are starting to offer more of the protections enjoyed by credit card users. Consumers may prefer to use debit cards because there usually are few or no associated fees unless users spend more than they have in their account and incur an overdraft fee.

 

By contrast, credit cards generally charge annual fees, over-limit fees, late-payment fees, and other penalties, in addition to monthly interest on the card’s outstanding balance.