Credit Card vs. Debit Card: Differences, Concerns, Security

The world of payments has come a long way from barter systems to currency to cashless modes of payments through plastic sheets.

In its early days, possessing a debit or credit card was indeed a big deal. Now, almost everybody with a bank account has a card and one would not think twice about stepping out of the house without a card in the wallet.

Differences between Credit Cards and Debit Cards

There are several differences between credit and debit cards.

Credit Cards

Credit cards are issued by a bank or financial institution. Cardholders borrow funds from the issuer and pay it back with interest. Lots of offers are given to credit card users by the issuing establishment in the form of discounts, cashback on purchases, and travel points. Customers who pay their card bills in full every month have a minimal interest to pay and can benefit substantially from reward points to be availed during purchases.

There are various forms of credit cards. The standard one is simply a line of credit. Secured credit cards have a mandatory deposit to be kept with the issuer as collateral in case of default on payments. Rewards cards have travel points, discounts, and cashback and are beneficial for high-end users. Cards without any preset spending limits are Charge Cards. Here unpaid balances cannot be rolled over from month to month.

Debit Cards

Debit Cards are payment cards where the money for transactions is debited directly from the checking account. This is unlike credit cards where payments are through a loan from the bank. Like credit cards, debit cards are also linked to major payment processors like Visa and MasterCard.

Apart from the standard debit card linked to the checking account, there is the prepaid debit card that is not linked to a bank account. People can make electronic purchases up to the limit pre-loaded in the card.

Thrifty consumers prefer debit cards, simply because there are no or very few annual or associated fees. In contrast, credit card issuers have a wide range of fees—activation and usage charges, penalties, late payment fees, and more that are added to the monthly balance.

Security Levels in Credit Cards and Debit Cards

In today’s age of electronic frauds, security levels in credit and debit cards are a critical factor. How do the two measures up in this regard?

In credit card purchases are made from the issuer’s money. Hence for any fraudulent transactions, the amount is replenished by the lender. A debit card is linked to the account and a hacker can drain out all the cash which will only be credited back after weeks when the financial investigation concludes.

In case of a dispute in an online payment using a credit card, it has to be raised with the issuer who will liaise directly with the vendor. Debit cardholders have to contact the vendor directly and this can be time-consuming and stressful.

While it seems that credit cards are more secure than debit cards, it is not entirely so. In case of loss or theft or fraudulent use of debit cards, the Federal Trade Commission stipulates that the maximum loss liability is restricted to $50 only if reported within two days going up to $500 if it crosses this period.

Pros and Cons of Using Credit and Debit Cards

Credit Cards

· Advantages – Credit cards are a buffer between purchases and the bank account. The money stays safe even if the card is stolen or lost. Holders get cash back rewards, discounts, and more. Additionally, there is insurance for holders and purchase protection. Credit rating increases with the proper usage of credit cards.

· Disadvantages – Users spend funds loaned and hence there is a steep interest rate to pay. There are also fees levied on credit cards. Extravagant users run the risk of falling into a debt trap.

Debit Cards

· Advantages – Minimal chances of falling into debt as the card is linked to money in the account. PIN-protected means high security. The card is easy to obtain and charges are not levied.

· Disadvantages – Account can be drained out in a fraudulent transaction. Since spends are linked to the existing funds, there is no help in an emergency.

Whatever may be the advantages and disadvantages, both credit and debit cards are now an integral part of peoples’ lives. Cash transactions are certainly on the way out.