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DEBIT CARD VS. CREDIT CARD

For the last ten years, people around the globe have heavily relied on debit or credit card

to conduct transactions. Compared to the past where people used to get their checks on Friday

and quickly rush to banks during lunch breaks to deposit and withdraw cash for shopping and

paying bills. Now, it has become rare to find an individual setting foot inside a bank to directly

deposit or withdraw funds to use. Moreover, many employers globally don’t issue paper checks

to their employees. Bills tend to be also paid online as many people have embraced electronic

systems of payment. In a discussion by Zinman, he states that people have embraced cashless

methods of payment compared to traditional methods of cold cash, and this has been enabled by

the existence of debit and credit cards. With this in mind, this paper will seek to show the

similarities and differences between debit and credit cards.

Similarities

To verify one's card identity both debit and credit cards have a three or four-digit card

verification code. With recent advancements in technology, the fraudulent purchase has been on

the rise. Therefore, the digit code found at the cards plays a crucial role in that they prevent

thieves from stealing when purchases are made on the internet.

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Both cards have a reward program. This is seen when they provide points and cash-back

incentives when one makes purchases through the cards. Points accrue when one makes

everyday purchases (Ching), for example, garments, food, and gas, as well as travel costs. But,

it’s important to reach out to your financial institution to enquire on rate structure, restrictions

and program details as they vary from one institution to another.

Both debit and credit cards have purchasing and accounting fees. As for debit cards, they

tend to charge fewer fees on purchases and interest rates, but small fees may be incurred. Debit

cards also charge fees on purchases that surpass the accessible balance and charge to withdraw

cash in an automated teller machine (ATM). On the other hand, credit cards charge a certain fee

of transferring the balance to another credit card, charges to obtain money in advance, charges

for paying late bills and fees for exceeding credit limits. Other credit cards charge annual fees for

the sake of keeping them open (Shy).

Fraud protection is another character found in debit and credit cards. Under the Credit

Billing Act, credit card holders are at risk up to $50 for fraudulent purchases, in any case, the

cardholder must inform the bank issuer when the card is stolen or lost. Hence, if one doesn’t

provide notification within 30 days, he/she will be held responsible for the charges. Debit cards

also have fraud protection. The federal Electronic Transfer Act states that one is liable for debit

cards up to $50 on the off chance that you tell the bank inside two business days in the wake of

understanding that your card is lost. However, one may be liable to $500 if you fail to notify the

banks that your card is missing (Zinman). Zero liability is offered in cases of theft or loss

provided you notified your banks immediately.

Differences
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The major difference between credit and debit cards is on requirements. For credit cards,

one is mandated to have a bank account, but for debit cards, one is mandated to have a bank

account (Zinman). Besides that when withdrawing money, in the case of a debit card it’s done

from the bank account linked to the card, while in credit cards the money isn’t withdrawn from

the account.

Charges also tend to differ in both cards. For instance, in a credit card, the banks tend to

charge interest, whereas in debit cards no interest is charged. Besides, there is a high-interest rate

on credit card which arises from the annual interest of keeping accounts active, transfer of

money, payment of bills and so on. But, in debit cards charges are only made based on the

transactions an individual makes or during withdrawals (Shy, Pg. 92).

Limits of withdrawal is also a difference between credit and debit cards. In cases of credit

cards, one’s maximum limit of withdrawal depends on the credit rating one has, while the

maximum limit one has in a debit card depends on the cash balance found in the account.

Overdraft also tends to differ in both cards. For instance, credit cards tend to have a low

rate of an overdraft facility, while debit cards tend to have a high rate of overdraft facility

(Ching).

In conclusion, it evident that debit and credit cards have eased the problem of carrying

huge amounts of money or a checkbook every time with us. Therefore, if you have sufficient

cash in your bank account, a debit card would be your better option. But, if you have insufficient

funds and no bank account and your credit rating is good, then choosing a credit card may suit

you. Therefore, one should choose wisely on the card that suits him more based on your

requirements.
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Work Cited

Zinman, Jonathan. "Debit or credit?." Journal of Banking & Finance 33.2 (2009): 358-366.

Shy, Oz, and Zhu Wang. "Why do payment card networks charge proportional fees?." American

Economic Review 101.4 (2011): 1575-90.

Ching, Andrew T., and Fumiko Hayashi. "Payment card rewards programs and consumer

payment choice." Journal of Banking & Finance 34.8 (2010): 1773-1787.