Debit Cards: Better or Worse than Credit Cards?

A debit card is linked to your bank savings account.

You can use a debit card to purchase products or services in shops, petrol stations, on websites, over the phone, by mail order or to withdraw cash at ATM’s in Australia and overseas.


How Debit cards Work

Debit cards access money in your savings account so they offer most of the flexibility and convenience of a credit card but leave you in control because you can’t get into debt by using them.

When using the card you’ll have to prove your identity by signing a receipt at the point of sale (if you pressed CREDIT) or by entering your PIN (if you pressed SAVINGS/CHEQUE)

Remember that because the debit card uses your own money you can only buy items that cost less than your current bank balance.

So if you want to buy a new TV for $1000 and you only have $500 in your savings account than you can’t use your debit card to pay for the TV.

Who Offers Debit Cards

community first credit union debit card issued by NAB

Australian debit cards are issued by Mastercard and VISA respectively and they have the same basic features – differing mostly by their fees and charges.

The following Australian banks issue VISA debit cards as well as many credit unions and building societies: ANZ, Bank SA, Bendigo Bank, Citibank, HSBC, nab, St. George Bank, Suncorp – Metway.

The only Australian banks which issue Mastercard debit cards are Bankwest and Westpac.

VISA entered the Australian debit card market first so they are the market leaders with more banks issuing their card and they claim that Australians have 4.3 million Visa Debit cards, which is quite impressive.

Mastercard offered their debit card product later on so they have fewer issuing banks but you should still investigate them because each bank that offers debit cards has slightly different terms and conditions.

How I use My Debit Card

I have a VISA debit card from Community First Credit Union which I use to pay business bills like office expenses, my business phone line and ADSL Account. It’s handy because some of my bills have to be paid by EFTPOS and some by Credit – either way it doesn’t matter because I can use the one card for both types of transactions and money spent comes from my business savings account.

Benefits of a Debit Card

Are you:

  • Too young?
  • Have a bad credit record?
  • Don’t earn enough income for a credit card company to risk issuing you with a credit card?

In that case a debit card is perfect for you because:

  • It can be used to purchase goods/services online on websites that only allow credit card purchases
  • It can be used to pay bills from companies like Internet service providers who may not accept BPAY or Direct deposit payments
  • There’s no need for the bank/credit union you’re applying for a debit card to do a credit check on you because debit cards use your own money.
  • You can use your debit card to buy goods or services anywhere around the world where Visa or Mastercard is accepted.

Drawbacks of a Debit Card

  • The Reserve Bank of Australia (RBA) has ruled that from 1 January 2007, merchants (shop and business owners) are not required to accept a Mastercard or Visa debit card as a condition of also accepting a Mastercard or Visa credit card

    This means that a shopkeeper is allowed to refuse payment by debit card if they wish to and ask for payment by cash or EFTPOS instead.

  • Also from the same date the RBA allows shop and business owners to add a surcharge eg: 2% if you pay by debit card and select the “CREDIT” button after swiping your card at the cash register.

    This reduces some of the incentive of using Debit cards because a main selling point is that by pressing CREDIT at point of sale you don’t get charged any fees.

    If you don’t want to pay the surcharge you’ll have to press SAVINGS/CHEQUE instead and you’ll most likely have to pay your bank a transaction fee

  • As Dwayne Charrington noted below in comments 4 & 5 if you select CREDIT when paying with a debit card then it can take a few days for your account balance to be updated – and this can cause you to think there’s more money in your account than there really is

More Reading

28 thoughts on “Debit Cards: Better or Worse than Credit Cards?”

  1. We have had debit cards for a while in the UK but they are of no use to me as I never have any money in my account

  2. I like how the debit cards take your money out instantly, instead of credit cards which could withdraw the money weeks later. It definitely makes it easy to keep an accurate running total of your balance.

  3. Debit Cards are imo much better than credit cards because you only are able to spend money that you have and you don’t then get into that credit trap.

  4. Debit cards are just as bad as Credit Cards. I myself don’t have a credit card but I have a Visa Debit card with ANZ and let me tell you it’s caused nothing but problems for me.

    Firstly quite to the contrary, the above statement is incorrect by Robb Lochaber. With my ANZ Visa Debit card, my transactions don’t come off my account balance right away. So when you purchase something and then get a bank balance and it says $1000, when in reality you couldn’t have that much because you just spent $400, your bank account balance says $1000 still at every ATM you visit.

    A Debit Card can cause a lot of confusion. I’ve been caught red handed a few times with my card saying I had money when in-fact it wasn’t my real bank balance and had spent all of my money.

    It makes it very hard to track your finances.

    – Dwayne Charrington.

    EDITOR: thanks for telling us about that Dwayne, my guess is that the things you bought were by pressing “CREDIT” when using your debit card – this would explain why the transaction took a few days to appear on your statement

    Does the same thing happen if you pay for something and select :”SAVINGS” on the machine?

  5. Everything I pay for is using credit. Because with ANZ you can only use savings if you are withdrawing money while you’re making the transaction which is pretty pointless but how they make their money I guess.

    As for my blog, I’ve been receiving very large amounts of traffic over the past few days to various articles and it’s really impacted my hosting substantially. It seems a bit better today than it did yesterday. My whole website went offline last night because of the traffic spike.

    By the way, I added your site to my RSS and will be visiting regularly.

    – Dwayne Charrington.

    EDITOR: thanks for the update and subscribing to my RSS feed Dwayne 🙂

  6. I used to be a big fan of only using my debit card but now I realize the benefit of credit cards. First, it’s essential if you hope to build up good credit. Secondly, there are many great benefits associated with certain cards. The best reward program is by far American Express where accrued points can be put towards airlines, hotels, restaurants, and a wide range of other great benefits.

    EDITOR: I prefer credit cards with no annual fee or reward program costs

  7. Better, better & better!!!

    Snes said: “We have had debit cards for a while in the UK but they are of no use to me as I never have any money in my account ”

    This is why they are better. If you don’t have any money in your account, you can’t afford whatever it is you want to buy – pretty simple eh? With a credit card in your pocket & an attitude like that, it can only spell problems…

  8. Here in the US, debit cards have no fees to make purchases with and just about every1 takes them. We have had them for a pretty long time by now and they are pretty popular. They still arn’t used as much as credit cards b/c for some dumb reason people like to go into debt and not pay it back by the end of every month.

  9. Ask the world economy goes towards a cashless society, the benefits of Debit Cards are fully noted above. However, with all ease of use, comes a sacrifice. The security aspect is severly overlooked. With the paypass on credit cards being caried to debits, it can be a scary world for identity theft

  10. with a credit card, if one is short on money, he/she can make purchases then pay for it after, whether in full or in parts. so it sometimes can be can harder to control the ‘urge to splurge’.
    with a debit card, one can only use his/her debit card if you have the money in your account. this can work to your advantage since you cant spend more than you can afford. you may also use your debit card as an ATM card… the debit card is linked to the your account, so this can be a vulnerable area here, anybody that is skillful enough can ‘steal’ from you, just like that… so it important that to be extra careful when you own one… which one to choose?? basically, it boils down to which one will work for you, which one is more appropriate for your lifestyle…

  11. Any processing company (credit/debit card) or merchant account provider worth dealing with will have a detailed site where you can learn more about the company, their services, and how much they charge. Nice Posting ,so informative. Thanks

  12. I think debit cards and credit cards function differently, with advantages and disadvantages for for each. Debit cards are convenient just like credit cards, as they make it so you don’t have to carry around a bunch of cash. However, debit cards don’t build credit, whereas credit cards do.

  13. And they charge you an account keeping/monthly fee for using your own money?? I’d have one but for that.

  14. Another drawback of a debit card is that it allows easier fraudulent access to your money. For example, people can make payments over the Internet with the debit card number alone (they do not need to physically posses the card) so it introduces all the problems of credit card fraud to your bank account. I think the merchants and the issuing banks are still ultimately liable for the sale but you might be without your money until the dispute is resolved.

  15. I think you said it all, debit card are my favourite for many reason the first of them being that they educate you not to spend money you don’t have.
    Let’s face it, if you can’t afford the $1000 TV, you just can’t afford it and a good way to get it is save money before you buy rather than get it before you pay and avoid paying the bank fees.

  16. Question.
    If I use my Debit card overseas to pay for a range of items, will I be charged a “currency conversion” fee, or do I pay the set rate of exhange for the day? If I do pay the fee – who gets it – Mastercard or my bank – or do they both have a piece of me?

  17. I was reading the fine print the other day and i believe there is an amount that they let you go over on your debit card. however this would be a bad thing imo, if the funds aint there they aint there, allowing anyone to have a “safety buffer” so-to-speak is just asking for trouble. double that with the fact that they charge a hell of a lot on overdrawn fees ($45+)
    anyone that likes to hover near the bottom of there money barrel will no doubt have alot of problems. Needs to be more education in schools about finances and responsibility, i see too many people who have no idea about overdraws, being caught by interest-free traps, the list goes on. i’m 32, but was lucky enough to have a mother that worked in accounting/banking who taught me the basics early on.

  18. Credit cards actually suck, for numerous reasons, including the 20+% interest on them, however, there is a place and time to need an actual credit card vs a Debit card.

    What I do is go to the local supermarket and buy a Visa gift card. I put $500-1000 on it and use that as my credit card. That way, I have the benefits of a credit card, I limit my exposure to things like what happened at Dreamhost. I pay no interest fees at all and I can’t over charge myself into oblivion.

    After spending last night helping a family friend deal with her $50,000 in credit card debt at 23%, and almost $1000 a month just for minimum payments, I think credit cards are just not worth the risk.

  19. I guess if you are really keen about it you can pay everything off by credit card and then pay off the balance a month later and keep the money in a savings account for extra interest.

  20. Interesting post, I never thought of using one before and now I can see the benefit. I have gotten in some trouble in the past with credit cards. Some good advice that I read once was to keep reducing your credit limit as you pay your card off, that way you don’t get into more debt. Once I do this I might switch to a debit card and stop buying go fast bits for the car 🙂

  21. I’m sort of surprised people haven’t mentioned the simple and easy transaction for online orders! i got a Visa debit card to purchase online or overseas. i use to ask for bank deposits and details via email = big hassle. so much easier now and what you buy comes straight from your own money meaning less liability with someone else’s

  22. With the current debt loads in America, Americans need to learn to manage money better and stop relying on credit cards.

  23. In Finland we have two kind of debit cards : online debit cards and offline debit cards. If you have online debit card (like people with bad credit does) it checks if you have enough money in your account to make a purchase, before accepting the transaction.

    If you have offline debit card, it normally doesn´t check your balance and the purchase won´t be charged from your account until about 5 days later. Sometimes it checks the balance, but if you have more money than the purchase is, it accepts the purchase and it still takes about 5 days to see it on your account.

    But if you have bad credit, you won´t get offline debit card which is almost funny, because there´s no credit on it, just this few days delay.

  24. I’ve been using a debit card for the last 1 1/2 years while not touching a credit card. Depending on the bank it’s very useful to get a monthly breakdown of your card usage…that’s when you realize if you’re hitting the bars too much!

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