All around the world, people are using different kinds of cards for their payments, but they never fully understand the functioning of their own card. While most people may know the basic difference between a debit card and a credit card, others do not even acknowledge the existence of prepaid debit cards. Although these three cards have similarities such as the expiration date, card numbers, and payment providers, the functioning of each card is far from being the same. This could be a reason why individuals become confused about what card would be the most beneficial for them and which one they should get for themselves.
In order to make this important decision, it is important for all first-timers (and others) to understand the difference between each card and be aware of its functions/facilities. Therefore, if you are planning on getting a card for yourself, here is everything you should be aware of.
Prepaid Debit Cards
Prepaid debit cards are not linked to any bank account but they will allow you to spend money. Moreover, these cards allow you to do normal bank transactions as well like transferring, card payments, withdrawals, and more. All you have to do is put money in the card so you can spend it. After reaching its limit (the amount of money on the card), you can only resume the services after reloading the card.
With this card, you do not exactly have to open a debit or current account. You will have an electronic wallet set up for you online by the payment provider. That will be your “bank account.” If you are not loading a hefty amount on your prepaid debit card, they can be non-transferable and anonymous. Some payment providers also give slips that have the banking information stated (like your name).
Before choosing one, make sure you are surveying options for the best prepaid debit card because they are fairly new. Moreover, if you are the owner of a small business, a prepaid debit card would be the best option for you. It will make sure you are not overspending your hard earned money because this card has limitations.
Debit Cards
With a debit card, you will be able to only use the money that is presently in your account. Debit cards are most commonly MasterCard or Visa and they can be used all around the world.
Debit cards are most likely linked to checking or current accounts. Any withdrawals or payments made with this card will make sure the money is being deducted from your bank account, which means you will not be at risk of spending excessive amounts of money.
With a debit card, it is important to keep checking your account balance so that nothing seems too skeptical later on. MasterCard and N26 users will receive live notifications on their phones if the card is being used and if the money is being taken from the account. Along with the amount that is being deducted, these users will also be informed the remaining balance in the account. This way, keeping a check of the budget and the money in the account is easier.
If you qualify for one, your bank will provide you with an authorized overdraft. These overdrafts have limited amount of cash that you can use. Moreover, they get accompanied by high interest rates if the account stays on a negative for too long. Therefore, keep in mind that an overdraft can be pricey and it is not free—ever.
For daily use, instant debit cards are the best option. They can be used abroad or at home despite what the balance may be. In addition, they are the most popular and cheapest debit card in the market.
Credit Cards
Credit cards and debits cards are extremely different. Unlike a debit card, with a credit card, you are directly paying from your bank, which is why you have the “credit.” Every month, you will receive a bank bill that will indicate how much money you have spent over the month. Depending on your geographical location, you will have to pay the money back in either parts or all of it to the bank before using the card for another month. In European nations, you must pay back all the money before using it again, whereas in the UK and US, you can pay it in parts, but a high interest rate will accompany it.
The money that you are spending is giving to you by the payment provider or the bank that you have issued the card from. This is the reason why these cards have the word credit attached to them. In addition, when getting the card, you have the freedom to sign a credit agreement. When you are doing so, you and the payment provider get to choose the budget for your credit. Depending on how much you are making, make sure to choose a reasonable amount.
Credit cards can be risky business. With no or less account of how much you are spending, people tend to overdo it. This results in hefty bills to pay later. Even if the payment is being done in parts, later on, the high interest rates cause it to skyrocket even more. In this case, this card type is not highly recommended.
How to Choose the Right Card
In order to figure out the best card for yourself, here are the top 4 things you should consider before making the final decision.
- Check and see where the card will be accepted. See if you can use it everywhere. If it can be used nationally and internationally.
- Check out the fees and rates you will have to pay for. For example, international transfers, overseas withdrawals, foreign currency payments, and more.
- Check to see if the card and account meets your needs financially (see the insurance policies, guarantees on purchase, premium services, and more).
- Make sure the money is insured.
With this knowledge, you can make the right decision when choosing a card for yourself.