How is a debit card different from a credit card?

Speed, security and convenience have made paying with plastic the preferred option for most Australians. In 2019, combined credit and debit card purchases increased to 9.4 billion per year according to research from Finder. 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. That's about 6.5 billion transactions per year compared to 2.9 billion per year made with credit cards.

They're both popular options, but what's the difference between a debit card and a credit card? You can use this guide to compare the similarities and differences between the two and decide which one is right for you.

Credit cards vs debit cards at a glance

Credit cards

You can use a credit card to spend up to a set amount of funds (your approved credit limit). You're required to pay vack what you've charged to the card. If you don't pay off your card in full by the statement due date, you'll usually be charged an interest rate. Some 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.

When you apply for a credit card, this is listed on your credit report whether or not you're approved. If you use your card responsibly and make timely repayments, this can help improve your credit score.

On the other hand, credit cards are a popular way to free up cashflow and 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 someone uses your card for fraud, the transaction amount will be refunded under a zero liability policy. If your card is used to make a fraudulent transaction, it won't impact your bank balance or savings.

Debit cards

Debit cards are linked to your everyday bank account and you're spending 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 Visa and Mastercard process the contactless payments. Whereas 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 that earns Qantas Points. There'es also the Citibank Plus Everyday account, which gives you access to the Citibank Dining Program. In general, you'll be limited to whatever retail offers Visa or Mastercard have available for cardholders.

Unlike credit cards, your applications for debit cards and transactions aren't listed on your report and don't impact your credit score.

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.

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