Debit cards are often seen as an alternative to credit cards. This is partially true, but there are some things that credit cards do that debit cards do not.
People tend to assume that debit cards are very similar to credit cards as they look the same and they are offered and processed by the same people. In some ways there are a lot of similarities, but in some ways they are quite different.
Debit and credit cards are both processed by the same people who process credit cards, in most cases these are VISA and MasterCard. This means that debit cards are usually accepted at the same places that credit cards are accepted. With credit cards and debit cards taken by the same people then this means that a debit card can be accepted at almost 30 million places around the world, no matter how small the bank that issued the card was and what sort of account the card was linked to.
Another similarity is that debit cards can be used on line and when ordering over the telephone. A cheque, which is the transaction type that is closest in behaviour to a debit card, could not be used on most of these transactions.
However debit cards are quite different from credit cards. Debit cards are always attached to another account. This can be a transaction account, or it could be an investment account, a savings account or even a home loan. This means that as soon as a debit card is processed then the money comes out of the account. There are no separate accounts as there are with credit cards.
This will mean that there are no grace periods with debit cards. A grace period is an interest free period between when a card is used for spending and when the interest is charged on the card. Sometimes these interest free grace periods can be for as long as two months. This can be a significant thing for an employee who is getting reimbursed by their employer after they spend the money or for a small business owner who buys materials for a job and then invoices within a short time.
Debit cards also do not offer rewards programs which can be useful to people who spend a lot of money on a card. One of the rewards cards that they are missing out on is the cash back card, which pays back a proportion of the amount spent back to the card holder.
