Are credit cards the same as debit cards?

Credit cards and debit cards have a lot of similarities on the face of them.  They look almost identical, both being on identically sized pieces of plastic.  Debit cards are processed by the two largest credit card companies, VISA and MasterCard.  They are both offered mainly by banks.  However the cards are actually quite different.

The major difference is that a debit card takes money straight from a bank account whereas a credit card builds up a separate balance that is paid off separately.  This difference has a bearing on a wide rage of other differences.

A big difference between debit and credit cards that results from the fact that the credit card has a separate account is that the interest is seen to be much higher on a credit card.  This is not always the case, as debit cards can have overdraft penalties that can add a significant amount to the cost of a debit card if there is no money, and grace periods mean that most credit cards allow for a period for the bill to be paid off.

An under appreciated difference between debit and credit cards is that almost all credit cards have a grace period which a debit card does not.  A grace period is the period between when a card is used to buy a good and when the interest for the money spent starts to be charged.  With most credit card accounts there is a period of a few days after the credit card bill to arrive for the money to be charged interest.

With a debit card this is not the case as the money leaves the bank account as soon as it is charged to the card.  It is important to remember with a debit card that unless the account has no interest charged on it then interest will be lost.  This is obviously the case when the debit card is charged against a mortgage or a line of credit, but it is less obvious when a debit card is charged against a savings account where interest is being paid.

Debit cards can be easier to get than credit cards as most types of bank accounts have banks that offer a debit card.  This goes for current accounts, savings accounts and loan accounts.  Anyone who can open one of these accounts can get a debit card.