What Are the Major Differences Between Credit and Debit Cards?

When it comes to paying with plastic, it can seem like credit and debit cards are synonymous. They both serve the same purpose: paying the bills. But there are a few major differences between credit and debit cards, and if you’re wondering which is best to use and when, it’s a good idea to know what they are. 

Although they serve the same purpose, they operate entirely differently. A debit card lets you use the card to spend money that you already have in your bank account. On the other hand, a credit card lets you borrow money from the credit card company, up to a certain amount, in order to buy things or withdraw cash. Because the two types of cards are funded differently, they have some key differences in how they function.

3 Differences Between Credit and Debit Cards

1. Access to Cash and Ease of Withdrawals

Because a debit card is funded by money that is already in your account, you are entitled to withdraw funds whenever you like, so long as you have the funds in the account. This is as simple as withdrawing money from an ATM, and nowadays many banks issue debit cards in the place of bank cards. So long as you use an ATM affiliated with your bank, there are no fees associated with withdrawing money. 

It is not quite so simple to access cash with a credit card. Many people do not use it regularly for cash, and may not know the PIN number. You can’t go directly to a bank branch in person to withdraw the money. The reason why people avoid using credit card withdrawals is that it requires being paid back at the high interest rates that credit cards charge, many of which charge extra for cash withdrawals. Credit cards do have one significant advantage when it comes to withdrawals: it gives you access to money that you wouldn’t otherwise have in the form of a loan. 

2. Billing

With a debit card there are no fees outside of any account fees, which can be avoided. That’s not the case with credit cards, where you are not just paying potentially high interest rates on the money which you spend, but are also paying fees. There are annual fees, late-payment fees, over-limit fees and all sorts of additional penalties. In this way, a debit card used regularly can help you save money by minimizing credit card use. 

3. Protections and Liability

All of those fees can provide on significant advantage when it comes to credit cards. In general, credit cards offer better protections than debit cards against fraud and theft. They may even help with problems with products that you’ve purchased. Nowadays more banks are offering debit cards with enhanced protections, and some credit cards are offering less, so it’s important to familiarize yourself with what the liability is regarding your account.

In general, it is a good idea to have both a credit and debit card. The debit card is great to keep spending in check, and can save you money, while a credit card when used in moderation will help you to build strong credit, can protect large purchases and can be a lifeline if you’re waiting to be paid. 

About the Author: Alexandra Mendez-Diez has worked as a freelance writer and editor for the past decade. She loves that the job entails writing about such a wide variety of topics, ranging from cattle-handling best practices to how-to guides for tracing ancestry through cookbooks, with all kinds of exciting stops along the way.