A plastic bank card is a payment instrument that allows making purchases in online and offline shops, withdrawing cash from ATMs, topping up your bank account, transferring money to your friends and relations, and performing other financial operations.
The first bank cards as we know them appeared in the USA in the middle of the 20th century. Their functionality was limited at first: you could only use them to pay in a restaurant network. Today, you can use your bank card to buy various goods on credit, accumulate bonuses, get cashback, and so on. The choice of bank cards is great and it may be difficult to choose the one that suits your purposes best of all. Below we discuss the main differences between various bank cards.
Basic types of bank cards
Bank cards can be classified by different criteria but probably the most important one is the type of money that you have on your bank card. This is how we are going to classify the bank cards below.
Type of money on your bank card
By this criterion, the bank cards are divided into debit cards, credit cards, overdraft cards, and prepaid cards. The main difference between them is as follows: in some cases the money on the card is the property of the card holder while in other cases, the money is the property of the bank that has issued the card.
Debit cards are tied to their holder’s bank account, which means that you have access only to the money that you have previously put in the bank. You can use your debit card to make all sorts of purchases and perform other financial operations but you have to keep within the limit in all cases. If you have a thousand dollars or euros on your debit card, you cannot make a payment that exceeds this amount. The POS terminal is going to say ‘not enough funds’.
Characteristics of debit cards:
- You normally have to pay a personal visit to the bank and bring your ID in order to obtain a debit card. Some banks are ready to send a representative to the address that you have specified and the representative will bring the card to you.
- Your application for a debit card is going to be instantly approved. However, the card delivery is going to take some time: a few days or a couple of weeks if you live in a remote region.
- Some banks will pay a small interest on the outstanding card balance. The amount of interest will often depend on the average monthly balance.
- Children can also obtain debit cards with their parents’ consent. The age varies from one country to another as well as from one bank to another. The lower age limit can be anywhere between 6 and 14 years.
The so-called payroll cards (the cards where workers’ salaries are transferred) are also referred to as debit cards. Using payroll cards is common practice in some countries.
Unlike a debit card, a credit card gives you access to the bank’s money. Having a credit card essentially means borrowing some money from the bank. You have to pay the money back in a specified period with an interest. A credit card is a convenient payment instrument but you have to bear in mind the fact that withdrawing cash from a credit card can be costly. Some banks charge a much higher interest on cash withdrawals than they charge on payments. For this reason, you have to inquire with the bank officer in advance what the interest rates are when you are applying for a credit card.
You can also acquire an anonymous credit card even though the word ‘anonymous’ can be misleading. The credit card does not carry your name but your identity as the car holder is known to the bank. You can obtain an anonymous credit card only from the bank where you have an account. Such cards are often referred to as ‘instant issue’ cards since you can get one instantly.
Characteristics of credit cards:
- Obtaining a credit card is a more challenging task than obtaining a debit card. You have to fill out a questionnaire, bring a copy of your passport with your photograph, proof of address and some sort of an income certificate. Naturally, the bank will want you to be able the repay the loan. The credit limit is calculated individually and it will depend on the level of your solvency and your credit history.
- When you take out an ordinary bank loan, the interest accrues from day one. When issuing a credit card to you, many banks grant you a certain interest-free period. If you use your credit card for payments but you are able to repay the credit within 1 month, for example, no interest is payable. Sometimes, the interest-free period can be as long as 3 months.
Overdraft cards are something between credit and debit cards. You normally have some of your own money on the card but if you suddenly have to overdraw, you can do so within the set limits. Suppose that you have a thousand dollars on your overdraft card but you want to buy something that costs two thousand. You can do so if such is your agreement with the bank.
What you do in this case is take a small loan from the bank without having to apply for it. Without doubt, you will have to pay back to the bank but an overdraft card can be a nice payment instrument especially in case of emergency.
Characteristics of overdraft cards that make them dissimilar to debit and credit cards:
- You can turn a regular debit card into an overdraft card.
- The central condition for qualifying for overdraft is regular incoming payments to your account (such as a salary or a pension).
- The overdraft limit will usually depend on the amount of monthly incoming payments.
- The interest charged on the overdraft is normally higher than the interest that you pay for the use of a credit card. However, some banks grant interest-free periods to overdraft card holders.
- Overdrafts are repaid automatically when a new payment comes to your account.
A prepaid card is similar to a debit card because you have to put some of your own money on it before you can use it. The main difference between a debit card and a prepaid card is that the latter is not tied to your bank account. This helps to protect your sensitive personal information when making payments with your prepaid card.
A prepaid card can carry your name or it can be anonymous. An anonymous prepaid card can be issued instantly because no client identification is required. The amount of money that you can put on your prepaid card is always going to be limited. Besides, you may have to pay a fee when adding money to your prepaid card.
Each card type has its advantages and disadvantages. Credit and overdraft opportunities allow using the bank’s money for payments instead of your own money. On the other hand, you normally have to pay an interest. An anonymous prepaid card can protect your identity efficiently but you cannot use it for making large payments. Which card should you choose? It’s up to you to decide!