Bank cards are used for most financial transactions these days and people are familiar with the technology. However, there are differences between check cards, debit cards and credit cards that need to be understood. Bank cards can be used for financial freedom and financial restraint, ultimately assisting with money management – but only when used wisely.
Each type of card has its pros and cons, although they are all versatile and almost universally accepted. There are occasions where cash payment is still preferred, but almost everyone carries a check card, debit card or credit card. In fact, it’s not uncommon to carry a range of bank cards for specific purposes and payment options. Understanding the difference between check cards, debit cards and credit cards is relatively easy, as check and debit cards perform similar functions.
What is a check or debit card?
Savings account debit cards perform almost all transactions previously undertaken using cheques, a bank book or cash. Checking accounts, named due to their association with checks (cheques), are commonly called savings accounts in Australia. Cards associated with savings accounts are often called debit cards, although banks use other names also, including debit credit card, cashcard and flexicard. Check or debit cards are multi-functional time saving devices that have been embraced by users around the world, creating an entirely new way to transact business.
Confusion arises when given the option to process a card payment as a ’check’, ‘debit’ or ‘credit’ transaction. The way payment is made will determine how the purchase is processed, who pays for the processing, and how long it will take. Both online and offline transactions are possible, as modern banks utilise their full reach to capitalise on transactions and provide reliable customer service.
When a personal identification number (PIN) is used, it is an electronic transaction in real-time. Check and debit cards can also perform credit card functions where a signature is preferred to a PIN. These payments become offline transactions and are processed the same way as a credit card purchase, with the transaction taking several days to accurately reflect on the bank balance. If a check or debit card has a Visa logo, for example, the payment is processed through the Visa network, and although not a genuine credit (line of credit) transaction, it utilises the same infrastructure.
Debit card versus credit card
Most consumers understand that all card transactions incur a fee that is factored into the purchase or service price. Banks are notorious for favouring credit card (offline) transactions that charge greater fees, however, the user-friendly nature of bank cards means consumers now have the flexibility of debit or credit choices for both expensive and everyday purchases. Debit card online transactions are much less expensive for retailers, so it’s not surprising that the amount spent on debit card transactions almost doubles that of credit card transactions in Australia today.
Credit cards are still widely used to purchase ‘big ticket’ items, and they can be a viable means of accumulating rewards points for spending on products or travel. Credit cards are reliable, have broad scope, and are considered safer as the owner’s authentic signature is required to use the card. Credit cards are also the choice for international travel and business, as Visa and MasterCard are global brands with tremendous reach. When managed effectively with repayments made on time, a credit card improves personal credit ratings and carries greater weight with banks and lenders for loan applications and approvals.
On the downside, credit card debt remains the greatest source of personal debt in Australia and spending habits need to change. Unfortunately, the temptation of borrowing easy money is most appealing to those who can least afford to repay it, and credit card misuse can quickly result in a cycle of debt. In cases where finances are tight or there isn’t a buffer for unexpected expenses, owning a credit card can lead to bad financial decisions, and sticking to a check or debit card is the safer option.
Flexible check and debit cards
If you don’t require a line of credit and prefer to spend money you already own, a debit card makes sense in a lot of ways.
- Easy to own and convenient to use
- There is no risk of overspending
- Cash is easily accessed at ATM’s
- It can be used almost everywhere a credit card can
- Check or debit cards can be used for online purchases
- Cards can be used in many overseas locations
- No risk of incurring penalties or fees
- Itemised monthly statement
As debit cards are multi-purpose, it’s not unusual for people to collect too many of them. Almost all bank accounts are linked to debit or credit cards, but most people function adequately with only a couple of bank accounts. If cards accumulate or aren’t being used, it may be time to close or reconfigure some accounts. Good money management is reliant on understanding the various card/account relationships for spending, saving and earning interest.
Cards can be used to cover general expenses or expressly linked with favourite retailers for targeted spending. There are more ways than ever to use check cards, debit cards and credit cards for convenient payments, deposits and purchases, and the fantastic plastic is now an essential everyday item used by almost all Australians.