Debit cards vs Credit cards

Once you’ve read up on debit cards and the different fees and features they typically come with, you might start to wonder about how they differ from credit cards and which option is best for you. 

To help resolve any confusion, we've gone through and compared the two, from features to fees and everything in between.

What is the difference between debit and credit?

The main thing that sets a debit card apart from its credit card cousins, is that a debit card lets you make purchases using your own money via a linked bank account. Meanwhile, a credit card allows you to borrow money from the bank to make purchases, which you'll need to pay back within a set period to avoid adding interest to your bill. 

Credit and debit card features compared

Access to funds

The main reason you'd keep this piece of plastic in your wallet is the convenience. Wether the cards are in their physical form or digitised through mobile payments, they'll usually be preferable to a pocket stuffed with a finite amount of cash.

So, let's take a look at how easy it is with each card type to access the available funds and some of the limitations you'll need to consider.

  • Debit Cards

With a debit card you'll usually only have access to funds that are in your bank account. However, some debit card issuers will also offer the option of an overdraft service which lets you withdraw more than what's in the account  (this is often an expensive way to access credit, so be sure to check the figures and see if you actually need to go into overdraft).

There’s also sometimes a withdrawal limit to consider. For example, if you have $3,000 in your account but your daily withdrawal limit is $2,000, then you won’t be able to spend the last $1,000 using your debit card.

  • Credit Cards

You aren’t limited by the size of your bank account when using a credit card – just by the credit limit you qualify for. If you’re new to using a credit card or have a low credit rating, you might only be eligible for a lower credit limit.

This can increase as time goes on and you prove yourself to be a responsible borrower, but regardless of its size, you'll want to stay safely under the limit and pay back the funds in the agreed-upon period. This shows lenders that you can manage your spending and repayments and will help improve your credit score.

Fees & charges

You don’t want to wind up paying a bunch of extra fees while you spend or access cash. So, it's important to know about the different fees and charges that come with using both kinds of cards.

  • Debit Cards

Generally, debit cards don't have an annual fee. However, the bank account it’s linked to might come with a monthly service fee, so be sure to investigate for fees on that front also.

You also won’t pay any interest with a debit card, making it a pretty cost-efficient way to spend money. But don't forget you might see a surcharge when using a debit card at some businesses, which can usually range from about 0.5% - 2% of the value of the transaction. For all the details, read our explainer on how businesses charge for EFTPOS 

  • Credit Cards

Credit cards can pack a real punch in the fees department depending on the kind of card you hold and which provider you've signed up with. The main extra charges to consider include annual fees, cash advance fees and the interest rate you'll be charged if you can't meet repayments within the interest-free period. 

Like with a debit card, you could be charged a surcharge when using a credit card at some business. You'll usually find a credit card surcharge is a little higher (approximately 1-3%) depending on which card you have.

Rewards

Everyone loves a freebie, so why not pick up extra perks when you hit the shops? 

  • Debit Cards

Some debit cards do offer the option to earn rewards for making certain kinds of transactions (some offer points schemes, cashback on purchases and exclusive retail offers) but most don’t. So if you're in it for the freebies, a debit card isn’t likely to satisfy you.

However, you'll often see spending via a debit card as a condition for earning bonus interest on your savings account. This is more of a savings tool than a reward, but it is a good way to earn interest on your savings fund if you can meet the criteria.

  • Credit Cards

There are heaps of awesome rewards credit cards that offer everything from retail rewards and points that can earn you free airfares to complimentary travel insurance.

Keep in mind you’ll usually pay more in fees and interest to have one of these cards in your wallet. The ideal situation is to find an option that's affordable with features you are likely to use so you get the most value possible out of using it. 

Chance of debt

You don't want to saddle yourself with a bunch of debt next time you hit the shops. So, consider the debt-accruing potential  of debit and credit cards before heading out on a spree.

  • Debit Cards

One of the only ways you could potentially wind up in debt by using a debit card is if you’ve used the overdraft service, in which case you could face hefty fees and interest. If you use your card responsibly and opt-out of the overdraft service, you can’t really go into debt using your debit card since this scenario won't let you spend money that isn’t yours.

  • Credit Cards

It’s no secret that using credit cards irresponsibly can leave you with big bills. This happens when people forget or ignore the fact that a credit card is basically a loan that needs to be repaid each month to avoid interest being applied and debt potentially accruing .

Worried about winding up with credit card debt? Read our guide on how credit interest-free days work for a better understanding of how you can avoid accumulating debt.

Credit history

If you ever want to take out a home loan to buy a house or borrow money to finance other goals, then you’ll need to have a good credit history to get approved. Your current spending habits, including the methods you use to make transactions,  can help you build that history (in both positive and negative ways).

  • Debit Cards

Your debit card statement itself doesn’t affect your credit history because you aren’t accessing credit.

However, the payments you make can have bearing on your creditworthiness. For example, if you use your card to pay bills and miss due dates, it can be reported to a credit or debt collection agency after a set timeframe and then added to your credit report. This can in turn bring down you credit score.

  • Credit Cards

Your credit card use will affect your credit history. Responsible spending – where you stay sensibly under your credit card limit and make repayments on time – can increase your credit score. This effectively helps build your reputation as a responsible borrower and puts you in a good position for loan approval down the line.

One the flip side, if you lose control of your credit card balance, it will reflect badly on your credit rating. Depending on the severity of the situation, this could prevent you from securing a loan later on.

Security

Having a credit or debit card tends to be safer than carrying a bunch of cash around in your pocket. You'll usually be able to cancel your card if it's lost or stolen to stop any further losses (the same can't be said for a lost wad of cash)  Having said that, debit and credit cards come with a few safety concerns of their own.

  • Debit Cards

Although having a PIN makes debit cards fairly secure, you do still need to take precautions as it’s a direct link to your money. If you lose your debit card, anyone can pick it up and use it (especially in the case of low-value contactless payments that don't require a PIN) However, if you alert your bank right away about a theft or fraudulent activity, most will reimburse you.

  • Credit Cards

There’s just as much chance that you’ll become a victim of fraud or theft with a credit card as with a debit card. Similar to debit cards, if you alert your bank or lender to fraudulent activity they'll be able to cover the transactions, as most have liability guarantees for this exact reason.

Application process

How hard is it to take out a plastic fantastic? Let's find out.

  • Debit Cards

When you sign up for a bank account, many providers will offer you a debit card to go along with it. Including this won't take up any additional time, as there usually aren’t any eligibility requirements when it comes to applying for a debit card.

  • Credit Cards

Credit cards, on the other hand, can be a little harder to acquire. In order to apply for a credit card, you’ll need to fill out an application and provide details about your finances, employment and income.

Some credit cards will have a minimum income requirement. This is because your credit card effectively gives you access to the bank’s money, so they want to know you that you're a responsible borrower who can afford to pay it back. Check out our guide to applying for a credit card.

So, debit cards or credit cards: Which is better?

Neither is better nor worse. Which option is better for you, however, will depend on your specific financial circumstances.

  • Debit cards are great for risk-free access to money you already have tucked away in your account.
  • Credit cards can be useful for earning rewards, building a positive credit history, and paying for big items when the funds aren't immediately handy (so long as you're able to cover the cost in the stipulated timeframe).

Which one is best for you will depend on your spending habits and what you want to get out of your piece of plastic. You may even decide to have one of both to use for different situations.

Find a credit card

If you decide to take out a credit card, make sure you're across all the essential info by reading our our credit card guides before comparing credit card options on Mozo.

Find a debit card

Decided to stick with a debit card instead? Below is a sample of some of the cards we research and compare at Mozo.

Compare debit cards - rates updated daily

Search promoted debit cards below or do a full Mozo database search. Advertiser disclosure.
  • placeholder
    Everyday Options

    account fee
    Payment Options
    what kind of card
    $0.00
    Apple Pay, Google Pay, PayID
    Visa Debit

    An easy, everyday banking account packed with flexible options to help you spend, budget and save better. Create up to 9 sub accounts.

    Go to site
    Details
  • placeholder
    Orange Everyday

    account fee
    Payment Options
    what kind of card
    $0.00
    Apple Pay, Google Pay, PayID
    Visa Debit

    Rebates on ATM fees anywhere in Oz. No ING international transaction fees. Zero monthly fees. Winner of the Mozo Experts Choice Awards 2020 for Exceptional Everyday Account.^

    Go to site
    Details
  • placeholder
    Go Account

    account fee
    Payment Options
    what kind of card
    $0.00
    Apple Pay, Google Pay, Samsung Pay
    Visa Debit

    Enjoy earning Virgin Money points on purchases (conditions apply). Bundled with the Virgin Money Boost Saver. No Account fees. Available as a joint account.

    Go to site
    Details
  • placeholder
    Everyday Global Account

    account fee
    Payment Options
    what kind of card
    $0.00
    Apple Pay, Google Pay, PayID
    Visa Debit

    No overseas ATM fees & up to 10 currencies in one account. Switch between currencies instantly 24/7 wherever you are using the mobile app.$100 Bonus for new HSBC customers and earn 2% cashback on tap and pay under $100 (T&Cs apply). Mozo's Experts Choice 2021 winner for Exceptional Everyday Account.

    Go to site
    Details
  • placeholder
    Global Currency Account

    account fee
    Payment Options
    what kind of card
    $0.00
    PayID, Samsung Pay
    Debit Mastercard

    Send and receive foreign currency with no Citi transfer fees. Consolidate your international bank accounts with account details for up to 10 currencies. Winner of Mozo Experts Choice Exceptional Everyday Account 2020 award^.

    Go to site
    Details

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