Bank Debit cards
If you use a debit card to buy something, you’re withdrawing money directly from your bank account. In this process the merchant puts the hold on the amount of purchase, then sends in the transaction to their bank and the amount is transferred to merchant’s account. This complete procedure may take a few days for completion. You need a PIN to use your debit card to make purchases at stores or online, and to withdraw money through ATMs.
Bank Credit cards
A credit card is a card that allows you to make purchases by borrowing money from the issuers and paying it to the merchant.
The bank credit cards include two things – the issuer and the network.
The issuer is the one that decides your credit limit. Whenever you buy something through your credit card, the issuer pays for it, and then you pay back to your issuer. You need to payout the balance within specific days to avoid any interest.
However, the network is the company that processes transactions on the card. Whenever you buy something with your credit card, the network is responsible to make sure that money from your issuer gets transferred to the merchant’s bank. Furthermore, the network makes sure that the sale is properly charged to you so that your issuer can collect.
- American Express (Works as both issuers and networks.)
- Discover (Works as both issuers and networks.)
Which bank card to choose – debit or credit?
When you have the option to use debit or credit, most of you prefer to choose debit card linked to a card account. This will help you prevent from accidentally falling into the credit card trap.
However, some people use credit cards for the majority of purchases to get credit card reward programs benefits. This will work for you if you pay off the balance in full each month.
Depending on which bank card – debit or credit you pick, different things happen when the payment is processed:
When you select debit: When you make purchases through debit card, you need to enter your card PIN and the funds are deducted from your bank account immediately. For merchants, this type of transaction is as close to cash. The merchants need to pay less transaction fee in comparison to the credit card transaction fee.
When you select credit – If you choose a credit card, this transaction needs a signature, and is processed by the credit card company. Moreover, the funds may or may not be immediately deducted from your bank account, depending on how the retailer handles their transactions. Some merchants “batch” their credit transactions and send them in at the end of the day. However, merchant accepting credit card transactions at their store has to pay the credit card transaction fee to the major issuers, like Visa and Mastercard.
So to enjoy maximum benefits of your card, ensure to use them in the following ways: if you use both of the cards, use your cards in the mentioned ways to get maximum benefits.
- Use debit card to for your daily purchases. This will help you to stick on your budget.
- Consider using credit cards for hotel reservations and car rentals. This will help you earn more cash back and other perks.
- Moreover, be sure to pay off completely every month to take full advantage of your cards.