Embed this Infographic on your site using the HTML code below:
The infographic offers an easy-to-understand comparison between credit and debit cards, interest charges, whether a line of credit facility is available, legal liability, sources of funds, and others.
While credit card issuers charge interest, debit cards allow holders to use their own funds free-of-charge or for a low maintenance fee. The interest varies, depending on the type of card, for example, rewards, low interest, balance transfer, or no annual fee card. Other factors are the applicant’s payment and credit history, employment and income, etc. When it comes to debit cards, some products actually offer returns. High-yield checking accounts are one example of a liquid product. The annual percentage yield usually varies between 1.5 and 2 percent, but some accounts offer 4 percent.
Line of Credit Facility and Limits
Another difference between credit and debit cards is that the former offers a line of credit facility while the latter does not. This feature allows holders to draw on the line up to the available limit. The limit also depends on the applicant’s payment history and score, type of card, and other factors. The limit on debit cards is equal to the money deposited by the holder. Some issuers, however, require that holders keep a minimum balance that varies from bank to bank. The limit on credit cards can be changed based on your payment history.
This is yet another factor that financial institutions take into consideration. Using a debit card does not help build or rebuild credit. In contrast, customers who opt for a standard or department store card and make timely payments build credit with time. You can use other products as well, including standard loans, personal, auto, and student loans, etc. Late and missed payments will affect your rating.
Sources of Funds
Debit and credit cards are offered by different financial institutions, including big and small banks, unions, online banks, caisses populaires, savings and loan associations, and other entities. The main difference between the two products is that by using your debit card you spend the money you deposited. With credit cards, deposits are made by other bank customers. This means that you spend somebody else’s money.
Credit cards come with a strict liability limit which is not the case with debit cards but the limit is the same. When it comes to monthly bills, customers using credit cards are billed on a monthly basis. Interest is not assessed if they pay the balance in full before the end of the grace period. Overdraft fees are another issue to consider. Debit card holders pay high monthly fees for overdrafts but clients must opt in to take advantage of this feature. This means that they cannot be enrolled automatically. Credit cards feature low overdraft fees, but there are other charges to take into account, including annual and foreign transaction fees, etc. When it comes to accounts, only debit card issuers require a checking account. Fraud is a big concern today, including theft and unauthorized access. Debit card holders may be held liable; so an adequate level of protection is required. Customers are asked to contact the issuer immediately in case their card is lost or stolen.