Most of us have used debit cards and credit cards in our day to day lives. These cards, along with prepaid cards, are known as bank cards, which was ground zero for the transition to a digital and cashless economy. Since these cards come with security measures such as a mandatory PIN requirement and can be blocked at a moment’s notice, people could carry a significant amount of money without the fear of loss or theft.
However, even after 55 years of the world’s first credit card, there is still some confusion on the differences between the three types of cards. It is quite easy to see why, as they seem to offer similar advantages, and even look extremely similar. If you’ve any lack of clarity between the different types of bank cards, rest assured, you won’t have any after reading this article.
What Are The Different Types Of Bank Cards
Bank cards are primarily categorized into three categories, namely debit, credit, and prepaid cards. Each of them can be issued by banks or other financial institutions as permitted by the Reserve Bank of India (or your country’s regulatory authority) and are differentiated, on the most part, on where the funds come from.
Let’s have a look at each of the different types of cards, and understand their nuances.
Debit Card is a type of bank card issued by the bank which enables you to use the money in your bank account. This means you can use it to withdraw/deposit money from/to your account, use it to purchase goods and services from local or even online businesses. Previously, we have explained how these transactions work, on our essential guide to understanding bank transactions.
Debit cards mix the convenience of not having to carry money like cheques, while also ensuring the transactions happen instantly. However, the amount of money that you can withdraw, or purchase, is limited by the amount of money existing in your bank account (unless your bank account allows cash credit/overdraft facilities). You don’t have to pay interest on the purchases you make, except for the annual fees that your bank might charge for maintaining your account, and the transactions do not impact your credit scores.
Credit cards allow you to pay businesses for goods or services rendered instantly, just like a debit card. However, the main difference is the fact that the cash doesn’t come from your bank account, but instead is from a line of credit extended to you by your credit card provider.
Unlike Debit cards, you need not have an account with the card issuer. Instead, you will be required to pay the amount due after each billing cycle. You can either choose to pay the minimum amount due, or the full amount due. However, keep in mind that you’ll have to pay interest as high as 30% on the amount unpaid within the due date.
Since the money comes from a line of credit, the transactions you make, and your repayment history, will directly affect your credit scores. While having more transactions on your credit card will not negatively impact your credit scores, defaulting on your payments can significantly affect them.
Using credit cards can be really beneficial if you can pay the amount due at the end of each billing cycle in full, otherwise, it can really put you in a situation of bother. In fact, this is one of the 5 reasons why we think credit cards might be obsolete in 5 years.
Corporate Credit Cards
Corporate credit cards, or corporate cards, are credit cards issued by banks to employees of big corporate entities. These cards enable better tracking of expenditures between employers and employees but fundamentally works the same as credit cards.
Prepaid Cards function, just like the name suggests. Customers, instead of maintaining an account like a credit card, pay a certain amount of money and get a card of the same value. Depending on the terms and conditions laid by the issuer, the card can be recharged, enabling it to be used just like a debit card, in the absence of a bank account.
The Salt Way
While the bank cards started the digital and cashless economy wave, their concept is slowly starting to show signs of age. With digital wallets and virtual cards making a wave, the time for cards may soon be coming to an end.
However, we still understand the role that bank cards play in the present world and do offer real cards, along with virtual cards for our customers to benefit, staying true to the spirit of being a leader in the FinTech space.
What are you waiting for? Join the Salt waitlist now!