Is a debit card right for your wallet? Read on as we run through everything you'll need to know about these handy bank cards and how to choose one for your needs.
When you open a bank account in Australia, you'll have the option of choosing a debit card. A debit card allows you to make purchases from stores and withdrawals from ATMs which get debited from your bank account. Some people call these cards EFTPOS or ATM cards. Another option available from banks and credit unions is a Visa Debit or MasterCard Debit card. This guide (and section of our site) mainly deals with Visa and MasterCard Debit Cards.
Why do you need a debit card?
Debit cards can make your day to day money transactions very simple reducing the need to carry too much cash at any point. You can use your debit card to withdraw cash from ATMs, pay bills and make purchases in Australia or overseas using your own money.
Your debit card is directly linked with your bank account and uses the money in this account when you make a transaction. It's a simpler and more secure way to make payments because your bank would protect you from fraud transactions and in case you lose your card, you can call your bank to block further transactions.
Both Visa and Mastercard debit cards have similar features and benefits. Which card on offer will actually depend on the bank as they are usually aligned with one card provider.
Interested in finding out which debit cards people think are the best? Head on over to our reviews section. Thousands of customers have reviewed their debit card and you can find out how they rank on price, features and fees.
What's the difference between credit and debit cards
Both credit as well as debit cards let you make transactions online as well as offline. The basic difference between the two is that while a credit card allows you to 'borrow' money from the bank at a fixed interest rate, a debit card uses your own money, so that you spend only what you have in your bank account.
While you won't build up a debt using a debit card, the main advantage with a credit card is that it gives you the liberty to split your expenditure as you want. For instance, if you are buying something valuable and don't have enough money at that point or even if you simply don't want to empty out your account, you can pay with your credit card and control the actual money outflow. Both cards have their own pros and cons and how much you choose to use one over the other is a matter of personal choice and finances.
What are the advantages of a debit card?
No debt: Debit cards are safer in terms of not being associated with the danger of falling into debt because you will only use the money you have.
No credit rating risk: Because you are not borrowing or repaying any money to the bank, there is no danger of your credit rating being affected. This also implies that your credit history will have no effect on your application for a debit card.
No extra fee for ATM withdrawals: While you can use your credit card to withdraw money from an ATM, because it is technically a 'loan' from the bank, you will have to pay interest on the cash withdrawal. On the other hand, since your money on the debit card is treated like cash, you don't have to pay an extra fee while withdrawing money from your own bank's ATM.
Security: Carrying a debit card instead of a stash of cash in your wallet is much safer because in case you were to lose it, you would be protected from the bank's anti fraud policy and you can get the card blocked from further transactions.
Cash back and rewards: While the rewards programs for debit cards are not usually as extensive as those for credit cards, with the growing use of debit cards, many providers have started offering cashback options and rewards such as special offers on home entertainment products or special offers on movie tickets. Check with your bank about any such schemes applicable to your debit card.
Purchase protection: Generally, the products that you buy using your Visa or MasterCard debit card, should also be eligible for purchase protection. This is an insurance which covers your purchases against loss, theft or accidental damage to an item that you have purchased with your debit card for up to 90 days. Usually, the provider would require you to press 'credit' instead of 'savings' while making a transaction on EFTPOS to be eligible for purchase protection. Be sure to read the exact requirements for eligibility in the terms and conditions for your debit card.
Tap and Go: Both Visa and Mastercard offer contactless payments also known as PayPass or payWave. This really means that when you are making a purchase of less than $100, you don't need to swipe your card or enter a pin. You can just tap or hover your debit card over the machine and your payment is complete. You will know if your transaction was successful through an illuminated light or a confirmation message on the display screen. It's really as simple as that.
Do debit cards have limits?
- Daily withdrawal limits. Most debit cards will have daily limits for cash withdrawals so if you are planning on making a major purchase (over $1000) you may need to plan in advance.
- Merchant surcharges. Some merchants will charge a percentage surcharge for Visa and Mastercard debit transactions. These can be as high as 10% of the transaction amount.
- Holding deposits. Some venues such as hotels will not accept debit cards for room security deposits. If you are travelling overseas it is also recommended that you also carry a credit card for this purpose.
- Online shopping. Not all overseas online stores will accept debit card payments.
Do all debit cards come with fees?
Debit cards don’t incur fees or interest in the same way credit accounts do, but there are still a few charges you should be aware of:
Surcharges. Eftpos surcharges apply in some cases when you pay with debit card instead of cash. These are generally low (the recommended amount is 0.5%), and are most commonly seen at cafes and restaurants.
Overdraft fees. Overdraft fees occur when you use more money that’s available in your account when you make a purchase. This puts your account balance into negative, and you could have to pay an amount to your bank for making up the difference.
Withdrawal fees. Whilst generally avoidable, there are still some circumstances in which you’ll be charged between $2 and $5 for taking money out of an independent ATM. If you’re travelling, a good way to avoid these is by using a travel debit card.
Travel debit cards, are they different?
While you can use your normal debit card overseas you generally have to pay fees for overseas withdrawals and currency convenience fees, which are around 3%. If you'd like to see how much these fees are, check out our debit card fee finder tool. Simply select the card and we'll show you how much you'll need to pay for overseas ATM withdrawals and purchases.
An alternative for travelling is to get a prepaid travel card, which is basically a debit card loaded with foreign currency that you can conveniently use while you are overseas. You can easily add multiple currencies on the card if you are going to different countries. Unlike your standard debit card, you do not need to have a bank account linked to the prepaid card.
This is an efficient way to avoid overseas conversion fees every time you make a transaction in a foreign country. Prepaid travel cards allows you to lock in an exchange rate before you travel so you don't have to worry about negative fluctuations while on holiday. You may however, need to pay an initial card issuance fee or a money loading fee, as well as fees for withdrawing cash from an ATM from your travel card so it is important that you compare prepaid travel cards in the market before you choose one.
Applying for a debit card
A debit card is directly linked to your bank account, and uses the money available in the account. That is why you would first need to apply for an everyday transaction account. These days, when you apply for an account you would automatically get a debit card as well. If you already have an account but not a debit card, you can visit a local branch or call your bank to apply for a card. Generally, to be eligible for a debit card, you have to be at least 16 years of age, and have an Australian residential address.
Where can I find a Budget calculator?
Debit cards are perfect for keeping a check on your expenditure and making sure you don't go beyond what you can afford. But if you need that extra help to figure out how much you are spending every month and how much you should be left with so you can plan your finances more efficiently, use our handy online budget calculator.