Banks cards, both debit and credit, are considered plastic money and accepted in most places, offering convenience and safety. The basic difference between the two is from where the cards draw out money, which is the source of funds.
While the former makes a debit against your bank account, the latter charges the transactions you make to your credit balance. Both cards carry marks such as Amex, Visa, Mastercard, Maestro etc, irrespective of which financial institution your hold your account in. These marks refer to the primary card carriers that facilitate bank card transactions.
Credit on Purchases
You use your card to make transactions, which in turn is charged against your credit balance. In simple terms, a credit card allows you to borrow money for the transactions your make, which can be paid off later. For this service, the bank draws a certain maintenance fee, and interest is charged on the outstanding amount, typically after the completion of a thirty day grace period, which is provided to pay back the financial institution.
Debiting your Account on Purchases
You can use plastic money to withdraw money instantly from your account upon any purchase, online or offline. This is done by placing a hold on the final amount of the payable bill. Then, the seller contacts your bank through the network facilitators, such as Visa or Mastercard, and the bank in turn transfers the amount to the merchant’s account. All this happens in just a few minutes, thanks to the technological advancements in the banking sector.
Why is Plastic Money so Popular?
- Credit cards increase your purchasing power and help you make transactions that are of greater value, for which you might not have ready cash. There is an option of paying back the bank through easy monthly installments.
- Banks today have come up with different types of credit cards for different purposes, such as small business, lounge assess, weekend cash back and online protection, to name a few.
- Without the need of borrowing money to complete the transactions, debit cards offer the same convenience as credit cards. Some banks offer EMI options for debit purchases as well.
- People feel that it is safer and easier to travel with these bank cards as opposed to carrying cash or traveler’s cheques.
There is a lot of debate regarding which card you should use over the other, owing to the few linked differences between the two. However, the primary difference lies in the source of funds.