A debit card is a card linked to your bank account that allows you to access your money via eftpos or credit, whether in-store or online. You will find that a debit card can help in almost every situation you would normally need a credit card, even if you aren’t eligible for a credit card or don’t want one.
Differences between credit cards and debit cards
Debit cards actually function exactly the same way a credit card does except for one major difference – you can only use your own money when you use a debit card. That applies even when you select credit on the eftpos machine at the supermarket. The transaction is still processed as if it was a credit card, and may take a couple of days to appear on your statement, but you can only use money you already have in the bank (including any pre-approved overdraft amount you have). This means there is no loan involved, as there is with a credit card.
A debit card looks exactly like a credit card, and can be supplied by either of the major credit card providers – Visa or MasterCard.
What is the best debit card for me?
It can be tempting not to bother doing much comparison when it comes to debit cards, but if you do some research before signing up you could end up better off in a few areas like fees and extras. On one hand, if you do want a bank account and debit card that offers you flexibility, you could benefit from choosing one which has a small fee attached, but if all you want is the basics you will want to make sure you choose a card which won’t be eating up your bank balance in monthly account keeping fees.
Ask yourself these questions to get started – and read and consider the reviews and information on debitcard.com.au carefully when researching a card:
- Will the card be for online use only (i.e. for PayPal or Amazon transactions)?
- Will you be making deposits in-branch?
- Will you be regularly making deposits into the account (i.e. your salary) and will they be enough to cancel out any applicable monthly fee?
- What’s the ATM network like for the bank you’re considering? Will you have access to free withdrawals via ATM?
- If you’re a student or pensioner does your chosen debit card account offer a concession on fees?
- Will you get any cashback, rewards points or other perks with your chosen card?
- Will transfers and account management be easier if you go with your existing savings account if you have one?
Also consider what other financial products you have and what will work for your own situation.
How can a debit card get me out of debt?
A debit card is a fantastic tool for managing debt when used properly, because you can only use what money you have. You cannot borrow any with it! The only debt you can go into is an approved overdraft amount, which is usually minimal and will come with less fees than credit card debt (overdraft fees range from $5 per incident to $20 or more, and often the facility costs $5 per month or so to maintain). Some banks may punish those who use their overdraft facility too much with massive fees of up to $20, so it’s always worth checking what you would pay if you did use your overdraft and what the conditions are.
Spending within your means
A debit card will not allow you to spend more than what you have, and allows you access to your own cash so that you can stick to your allocated budget. This is key to someone who is dealing with credit card debt and needs an alternative option for buying the things they need or paying regular monthly expenses.
Avoid the interest trap
With a debit card you’ll also avoid interest charges that can be as high as 24 or 25% when you withdraw cash using a normal credit card, and you will still be able to access the same services and payment options as a credit card allows. Even the purchase rate for credit cards is around 13% at the moment for a low rate credit card, which is high. Debit card transactions usually cost you nothing whatsoever in interest.
What are the differences between a travel card, prepaid card and debit card?
A debit card is different from a travel card or prepaid credit card in the way that it is linked to your Australian bank account, and can be used to identify you and linked to your credit card or savings account for easy transfers.
Both travel cards and prepaid credit cards can be purchased by handing over cash at the post office or within a bank, but you do not need to go through a credit check. Prepaid credit cards are often used by companies to provide access to cash gifts for employees, for example.
A travel card is what you would use when you are planning to travel overseas and need to use the card with different foreign currencies. This card can also be pre-loaded and money transferred between different currencies, but you will usually pay fees for re-loading and for transferring money at times. Many also come with a monthly fee, even though it can be as low as $1, plus you may still pay ATM withdrawal fees.