When it comes to finances and Australian bank accounts, there are two common terms that come to mind: debit card and credit card. The main difference between them is that a debit card enables you to access your own money, which means that you spend only what you already have. On the other hand, a credit card allows you to borrow money, so it’s like taking a loan to use for transactions. In this article, know more about the similarities and differences of the two:
What's the difference?
A DEBIT CARD enables you to access your own money, while a CREDIT CARD enables you to borrow money.
Fees and Charges
It is essential to know the fees involved when using your debit card or credit card. A debit card has no annual fee and no interest. However, it can come with a monthly service fee. A credit card comes with an annual fee, cash advance fee, and surcharges in some business. If you don’t pay your balance in full and on time, you will pay the interest rate.
Incentives or Rewards
When you compare bank accounts, make sure to ask about freebies or rewards that you can get. Some debit cards allow you to earn rewards such as cashback and discounts on retail stores. As for credit cards, you can get a wide array of rewards – from free flights to retail rewards. Banks vary in the rewards that they offer, so keep this feature in mind when you do some bank account comparison.
Having a good credit history will come in handy for when you need to apply for a loan in the future. You can build it through your spending habits. Using a debit card doesn’t contribute to your progress in building a credit history. The good thing is, since you’re accessing your own money, it means that you don’t damage your credit rating. On the other hand, using a credit card affects your credit history and if you’re responsible enough with your spending, you can create a good credit rating. The downside is, when you overdo your spending that it becomes out of control, it will have a bad impact to your credit rating and you may not be able to secure a loan.
So which is the better plastic card for you? It depends on your spending habits, needs, and preferences. If you need access to money without risks, go for a debit card. If you need to make big purchases or another option to make transactions aside from cash, a credit card may be ideal. In the end, you can have both to be used in different situations.
Do you have other ideas on bank account comparison and Australian bank interest rates? Share your insights in the comments section.