Cashless payments have been in our lives for many years now and we are very keen to conduct our purchases using cards. However, the existence of debit, credit, and prepaid cards confuses a large number of individuals. Although these 3 kinds of cards allow you to complete wire transfers, they are different in terms of their functionality, usability, and the source from which the money are charged. If you would like to deeply learn what the differences between those 3 types of cards are, then… keep on reading!

Before we start explaining how these cards differentiate from each other, make sure to check out our previous article, where we explained what a prepaid card is. It will be easier for you to catch on!

What is a Debit Card?

A Debit Card is associated with a bank account, so you can only use the money loaded into that account. This amount can be your salary, or any other kind of income. Whenever you purchase anything, the money is instantly deducted from the bank account your card is linked with, and it is transmitted to the bank account of the seller. You can think of a debit card as a “pay now” card. You can use your debit card to pay online or at a physical store, as well as withdraw cash from an ATM.

Debit Card Rewards

You might have heard of card rewards before. Well… debit card users (usually) do not earn any rewards whatsoever. There are very limited cases where banks provide rewards to the cardholders.

Debit Card Overdrafts

In case your linked bank account does not have enough money, then the purchase you are trying to make will be declined. However, you might be able to overdraft funds if your bank provides this service (not all banks do). Therefore, you might also be able to spend more money than the actual balance of your account.

Debit Card Benefits

· Low (or zero) fees: Some banks might charge you a small amount of fee if you withdraw funds from an unaffiliated ATM. But ATM fees can easily be avoided if you visit a branch of the bank you have issued your card with!

· International usage: No matter where in the world you travel, you can use your card for payments, just like you normally do in your country! But remember that your bank might hit you with extra fees!

· Safety: If you carry cash with you and your wallet is stolen, then your money is gone… Debit cards protect against theft, since you can deactivate them by notifying your bank.

What is a Credit Card?

A Credit Card on the other hand, is issued by a bank and it allows you to “borrow” funds from that particular institution, up to a preset limit. Unlike a debit card, credit cards do not charge their holders instantly. It is like a “pay later” card. You basically use a credit line from the bank to conduct your purchases. The bank pays the seller and you pay the “borrowed” money back to the bank, on a monthly basis. Credit cards are useful in big purchases like travelling, while they can also be used in sudden situations, such as car repairs. However, they come with fees so you should look out for the rates before applying to get one!

Credit Card Rewards

Most credit cards reward their holders for using them. They come with additional rewards, such as hotel discounts, travel points, travel miles, cash backs, etc. Debit cards on the other hand, usually do not provide any rewards to their holders.

Credit Card Benefits

Apart from the rewards mentioned above, credit cardholders enjoy a variety of other benefits.

· Insurance: Many cards come with several types of insurance, like car and travel insurance.

· Airport lounge access: Lounge access to grab a coffee and a snack before flying, or after departure, is another benefit credit cardholders can enjoy!

· Bonus: You can get approved to receive hundreds of euros as a bonus, unless you spend a specific amount of money using your credit card. This is a one-time prize and can be earned if you spend at least the minimum preset amount within the first few months after your card’s issuance.

· Fraud alerts: This service protects the individual from losing his/her card.

What is a Prepaid Card?

An extensive description of this type of card is provided into the previous article explaining what is a prepaid card. In this section we will distinguish the main characteristics that differentiate prepaid cards from debit and credit cards. Prepaid cards are similar to debit cards; you load the card with money before using it. Unlike debit cards, prepaid cards are not associated with a bank account. You deposit the money you would like to use and then conduct your payments. It can be thought as a “pay ahead” card. Compared to both debit and credit cards, prepaid cards have fewer protection features.

Prepaid Card Benefits

· No overdrafts: Since the card is not linked to a savings account, you cannot overspend. The maximum money you can spend, is your card’s balance.

· Spending control: Since you are the one who deposit money in it, it is easier to control yourself from spending too much money. Let’s say that you add €200 a month. Well, you’ll only spend up to that amount!

· Easy issuance: Everybody can get his own prepaid card. It doesn’t matter if you had a bad credit before, because your financial institution won’t check.

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