Speed, security and convenience have made paying with plastic the preferred option for most Australians. In fact, 2019 research from finder.com.au has shown that combined credit and debit card purchases have gone from around 2 billion per year in the mid-2000s to 9.4 billion per year.
But there has also been a big change in the type of card we use. While there was a roughly equal number of transactions on debit cards and credit cards in the mid-2000s, debit card use now makes up around 69% of all card spending – or about 6.5 billion transactions per year compared to 2.9 billion per year made with credit cards.
Although that shows we use debit cards more, there are some big differences between what they offer and the features you get with a credit card. So here, you can weigh up each option to decide which one fits with your spending plans.
Credit cards vs. debit cards at a glance
- Give you access to a line of credit
- Most cards charge an annual fee, as well as interest if you carry a balance
- Many credit cards offer rewards and perks like travel insurance
- Typically attract a higher surcharge/card payment fee
- Give you access to your own money
- Many accounts have $0 monthly or annual fee options
- Less risk of debt or additional charges, compared to credit cards
- May offer a lower or $0 surcharge/card payment fee
Credit cards let you spend up to a set amount of funds, which you can then pay off over time – usually with interest charges. Most credit cards also charge an annual fee. On top of these account costs, credit card surcharges can range from around 1% to 2% of the transaction value, compared to around 0.5% to 1% for debit cards. Learn how to avoid surcharges with Finder Fee-Free Shops.
On the other hand, credit cards are a popular way to earn reward or frequent flyer points on your everyday spending. You can also get credit cards with perks such as complimentary overseas travel insurance and airport lounge passes and concierge services that can help with travel, dining and entertainment bookings (among other things).
What about security?
Most credit cards offer 24/7 fraud monitoring services to help protect you against suspicious activity. If your card is used for fraud, the transaction amount will be refunded under a zero liability policy. One key advantage that credit cards offer in comparison to debit cards is that if there is fraud on your account, it won’t affect your actual bank balance or savings.
Debit cards are linked to your everyday bank account and give you a way to spend your own money. This means they don’t attract interest charges. Most everyday bank accounts that offer debit cards also offer $0 account fee options, meaning you can often use a debit card without paying any extra costs.
It also costs merchants less money to process debit card payments, which is why there is often a lower surcharge compared to credit card transactions. One key detail to note: for tap-and-go transactions, you may find the surcharge is higher than if you insert your debit card and enter the PIN. This is because contactless payments are processed by the Visa or Mastercard network, while the eftpos system processes payments where you swipe or insert your debit card and choose "cheque" or "savings".
In comparison to credit cards, you are much less likely to get reward points or other complimentary extras with a debit card. There are some exceptions – such as the Bankwest Qantas Transaction Account or the Citibank Plus Everyday, which gives you access to the Citibank Dining Program – but in general, you’ll be limited to whatever retail offers Visa or Mastercard have available for cardholders.
What about security?
Like credit cards, debit cards offer a zero liability policy, which means you will be refunded for fraudulent transactions. Some debit cards also offer fraud-monitoring services. However, if your account is used for fraud, you will be left without that money until the bank has fully investigated the claim – which could take a few weeks or months.
Which is better?
With a credit card, you get the flexibility of paying off the balance over time, as well as more options when it comes to rewards and other perks. But a debit card often means you will pay fewer fees and have more control over your spending because the money is coming straight from your bank account.
So even though most of us now make payments with plastic, the type of card we use is ultimately a personal choice.Back to top
* The credit card offers compared on this page are chosen from a range of credit
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of all the products available in the market. Products are displayed in no particular
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subject to our disclaimer.
You should consider seeking independent financial advice and consider your own
personal financial circumstances when comparing cards.