Debit Cards vs. Credit Cards

John S Kiernan, WalletHub Managing EditorNov 22, 2022

John S Kiernan, WalletHub Managing Editor
Nov 22, 2022

The main difference between debit cards and credit cards is that debit cards are linked to a checking account and funds are pulled out immediately after a purchase, while credit cards are linked to a line of credit and purchases are paid off at a later date. A credit card is also far more likely to offer rewards. In fact, the best rewards credit cards can offer up to $1,204 more than the worst rewards cards over the first two years.

Credit cards are better than debit cards for people who use them responsibly because credit cards can help you save money, finance big-ticket purchases and build credit. Credit cards provide more fraud protection, too.

Both credit cards and debit cards deserve a place in most people’s wallets, though. Below, you can learn more about how credit cards and debit cards compare, as well as when to use each.

Feature	Debit Card	Credit Card	Winner
Source of Funds	Checking account	Credit line.	Credit Cards
Debt Potential	Zero, if you don’t opt-in for overdraft protection	Credit limit represents debt ceiling	Debit Cards
*Requires Account Approval?*	Yes, based on banking history and/or relationship with institution	Yes, based on credit standing and disposable income	Debit Cards
Acceptability	Anywhere VISA or MasterCard is accepted	Anywhere VISA, MasterCard, American Express or Discover is accepted	Credit Cards
Credit Building	DOES NOT impact your credit standing	Impacts your credit standing, with monthly reporting to credit bureaus	Credit Cards
Average Annual Fee	$26.88	$21.65	Credit Cards
Interest	Earned on deposits	Owed if you don’t pay your balance in full	Debit Cards
Rewards	Rarely	Often	Credit Cards
ATM Access	Yes, often free when using in-network ATMs	Yes, costly cash advances	Debit Cards
Credit Line	No,	Yes, with unsecured credit cards (up to $100K+)	Credit Cards
Grace Period	Not applicable	At least 21 days between the end of a billing period and the due date	Credit Cards
Overdraft/Overlimit	Must opt-in to overdraw debit card	Must opt-in (not recommended)	Tie
Fraud Liability	$0 liability on signature transactions $0 liability on some PIN transactions	$0 liability on all unauthorized transactions	Credit Cards
Secondary Benefits	Excellent exchange rates, but credit cards also provide that and more	Rental car insurance, travel protection, extended product warranties, and more	Credit Cards
*Overall Winner: Credit Cards*

Debit Card or Credit Card? When to Use Each

Credit cards and debit cards both enable you to make purchases online, over the phone, or in person at the point of sale, but there are also certain things that you can only do with one type of card or the other.

Credit Cards Only	Debit Cards Only
Financing Purchases	ATM Withdrawals
Balance Transfers	Cash Back at the Register
Earning Rewards on Purchases	Small Dollar Transactions

Note: Some debit cards provide rewards, and it’s possible to use credit cards for small transactions and ATM withdrawals, but they may not be the best payment method for the task.

Financing Purchases & Balance Transfers:

A debit card’s very nature prevents you from using it for financing purposes. Credit card users, on the other hand, are only required to make a monthly minimum payment – usually around 3% of their balance each month. You can therefore use a credit card to make a big-ticket purchase or to cover an emergency expense while actually paying off the majority of the cost at a later date.

Similarly, you can move various types of debt – including that originating from other credit cards, auto loans, HELOCs, mortgages and student loans – to a credit card in order to pay off your balance over time with a lower interest rate than you’re currently being charged.

Earning Rewards on Purchases:

A credit card is far more likely to offer rewards than a debit card, and a credit card’s rewards are likely to be much more valuable.

It’s also important to note that when it comes to everyday purchases for which either a credit card or a debit card can be used, sacrificing the rewards of the former is equivalent to subsidizing the purchases of those who opt for that feature. Credit card processing fees and rewards program costs are baked into merchant pricing, so we all share in credit’s financial burden whether we enjoy the associated benefits or not.

ATM Withdrawals & Cash Back at the Register:

One of a debit card’s main draws is the ability to access cash from ATMs as needed. Not only does this lighten up your wallet, but it also makes you less of a target for pickpockets and other criminals. While you can use your credit card at an ATM, in what’s known as a cash advance, we consider cash withdrawals to be a debit-only transaction due to the prohibitive cost of credit card cash advances.

You can also effectively turn a merchant’s cash register into an ATM by opting to receive cash back when paying for a purchase with a debit card at certain retailers. This is not possible with a credit card.

Small Dollar Transactions:

Neighborhood merchants often will not accept credit cards for purchases under a certain amount – typically $10 – due to processing costs skewing the value proposition.

To learn more, check out our guide to choosing between debit and credit at the register.

Debit Card & Credit Card Trends & Tips

The payments landscape is constantly changing, influenced by regulation, criminal schemes and consumer preference. Periodically taking stock of the landscape is therefore quite enlightening and potentially profitable.

Low Interchange Fees on Debit Cards: The Durbin Amendment limited the so-called “swipe” fees that banks can charge merchants for debit card purchases, thus costing big banks an estimated $8.4 billion in annual revenue, necessitating changes in the fee structure of checking accounts and essentially killing debit card rewards. Interestingly enough, such dynamics have also led banks to promote signature debit card purchases with more favorable fraud liability protections, as they provide more profitable interchange fees than the otherwise more secure PIN transactions.
Signature Transactions Get More Protection Than PIN Transactions: Card networks offer blanket $0 liability guarantees for unauthorized transactions “verified” by signature, while providing far spottier coverage for PIN transactions. One reason for this is that signature debit card transactions carry higher interchange fees than PIN transactions and are thus more profitable for credit card companies.
Issuers Earn Big on Interchange Fees: Despite regulations limiting these fees, card issuers still pull in $20 billion in annual interchange fees.
Chip and Signature Still Popular in U.S.: Most “smart” credit and debit cards now being issued use chip-and-signature verification rather than the more secure chip-and-PIN, as the former provides for an easier transition from our current magnetic-stripe-based payments system.
Apple Pay & Google Wallet Widely Accepts Cards: Debit cards and credit cards can both be added to Apple Pay and Google Wallet.
Debits Cards Still Popular for Small Purchases: Debit cards are used almost twice as often as credit cards, but the value of credit card payments exceeds the value of debit card payments by almost 30 percent.
Consumers Spend Trillions per Year: Combined spending on U.S. credit cards and debit cards totaled $8.5 trillion in 2021.
More Alternatives to Traditional Cards: Credit cards and debit cards both have what amount to cousins – products that offer similar utility with slight differences. Store cards and gas cards play this role as it relates to credit cards, and prepaid cards offer a viable alternative to the traditional combination of a bank account and debit card.

Credit Card vs. Debit Card FAQ(11 questions)

Is it easier to get a checking account online or at a branch?

Upvotes

Sydney Garth, Credit Cards Moderator

It's generally easier to get a checking account online. It can take just minutes there's no need for signatures or branch visits.

If your account is with a traditional bank you will have the option to conduct most or all of your business online or at a local bank branch. If it's with an online-only bank, unless you are granted access to an ATM network, everything you do will be done online.

View more answers

What are the most important fees of a checking account?

Upvotes

Kendall Morris, Credit Cards Moderator

The most important fees of a checking account are monthly maintenance fees, overdraft and ATM fees. Some banks also charge low minimum balance fees that you should look out for.

What non-cost features should I look for in a checking account?

Upvote

Sydney Garth, Credit Cards Moderator

The non-cost features you should look for in a checking account include minimum balance requirements, the existence of limitations on transactions, and online and mobile access. Additionally, some checking accounts earn interest, so that is another feature to look for.

What does debit card mean?

Upvotes

WalletHub

Swiping a debit card is the exact same thing as writing a check. When you buy something with a debit card, the purchase price is automatically deducted from your checking account. You then receive your monthly purchase statement from your own bank, but you do not need to make any payments because the money has already been withdrawn from your checking account.

Should I use a charge card or a debit card?

Upvotes

John S Kiernan, Managing Editor

There are benefits to using both charge cards and debit cards. Charge cards allow you to build credit history and do not require immediate payment for purchases, which provides both flexibility and added protection from fraud. You must simply pay your balance in full at the end of each month in order to retain purchasing privileges and avoid late fees.

Additionally, charge card accounts provide far more lucrative perks and rewards than do debit cards. The only benefit that a debit card has over a charge card is that it makes it impossible to spend more than you can afford. Therefore, you should only use a debit card if you seek this type of inherent discipline.

Why do you need credit?

Upvotes

WalletHub

Even if you don't plan on ever taking out a loan or getting a credit card, you might find that not having any credit will put you at a disadvantage compared to those who have good/excellent credit.

For example, if you're looking to get an apartment, many landlords will check your credit in order to find out whether you're financially responsible or not. Another example would be when looking for a job. Some employers will check your credit to find out more about you.

So if you're ready to begin your journey to excellent credit, you should check out this article: /edu/cc/new-to-credit-guide/25573

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Which is better, cash or a credit card?

Upvotes

WalletHub

Using a credit card responsibly is better than paying with cash. After weighing the pros and cons of cash vs. credit cards, it is clear that credit cards have several major advantages that cash cannot match, from convenience and security to the ability to build credit. Many credit cards also offer rewards for making purchases. You can earn cash back, points or miles and redeem them for cash, gift cards, travel or merchandise. That effectively makes everything you buy a bit cheaper. Cash does not provide the same benefit.

Most importantly, however, responsible use of a credit card will enable you to build the credit history needed to secure favorable terms for car loans, personal loans, mortgages and more. Assuming you could afford to pay for all expenses and necessities in cash, you'd have no established record of borrowing money and paying it back. Should the cash ever run out, you would face an uphill battle trying to obtain credit as a result.

Besides, you don't even need to make purchases in order to build credit with a credit card. So if you don't trust yourself to spend within your means, you could lock the card in a drawer and still benefit.

Still, there are instances where cash remains king. Let's take a look at the pros and cons of these two major payment methods.

Cash vs. Credit Cards By Category

Category	Cash	Credit Card
Popularity	19% of transactions made in the U.S. in 2020	27% of transactions made in the U.S. in 2020
Convenience	Accepted almost universally Limited to in-person purchases Some businesses may only take cards	Accepted by more than 40 million U.S. merchants Accepted online and in person Some retailers may not take certain cards
Rewards	None directly	A very large number of credit cards offer rewards
Security	Very hard to recover if stolen	$0 fraud liability for unauthorized charges
Credit score	No impact	Monthly reporting to credit bureaus
Budgeting	Cannot spend what you don't have No interest charges	Purchases itemized on monthly statements Risk of costly interest charges
Emergency expenses	May not have enough cash on hand for unforeseen expenses No interest when using own funds	Can pay for emergency expenses before you have the money Interest charges if carrying a balance
International travel	Must exchange to local currency No additional charges on purchases More widely accepted; ATMs easily accessible	Not all card networks are widely accepted Possible foreign transaction fees up to 3% Least expensive way to convert currency

Ultimately, the battle between cash and credit cards is a win for credit cards. Fewer and fewer people now carry cash, instead using credit cards (or debit cards) for nearly all day-to-day transactions. And there are several good reasons for that, as you can see.

With that in mind, the next step is to find the right credit card. Our free, online credit card comparison tool allows you to apply filters and narrow your search to the cards best suited for your credit standing and spending preferences. You can also read our guide on How to Get a Credit Card for tips and advice about the process.

When should I use my credit card?

Upvotes

Christie Matherne, Credit Card Writer

You should use a credit card when you are making a big purchase, building your credit, traveling overseas or domestically, making hotel or car rental reservations, spending money in an emergency, and even making everyday expenses. In fact, if you can use a credit card for a purchase, you probably should, because all credit cards offer a $0 fraud liability guarantee. If someone does steal your credit card information, all fraudulent charges will simply be cancelled, which is preferable to your checking account getting drained or frozen as you wait for a debit card fraud claim to get processed. And of course, when cash is stolen, it's usually gone for good.

Rewards are another great reason to opt for credit cards when making a purchase. Rewards credit cards offer cash back, points, or miles for purchases – some of which can be worth up to 5% of the purchase amount, depending on the credit card. It's essentially a discount on everything you buy with the card. Some travel credit cards offer benefits, such as luggage and rental car insurance, that can be very valuable to a frequent traveler. But you only get those benefits when you use the card for the travel purchase.

Examples of when to use a credit card:

To Build Credit. Credit cards are by far the easiest and most practical way to build credit history. Each month you have a credit card – even as an authorized user – credit bureaus receive information about your account. If you pay the bill on time every month and avoid racking up a big balance, you'll have a good credit score as time goes on.
In Emergencies: Credit cards are a good option for surprise situations that no one plans for – car trouble, emergency vet bills, and household repairs, for example. And if your emergency savings aren't quite where they should be, a credit card can offer a certain peace of mind. Sometimes paying interest can cost less than the alternatives.
For Everyday Purchases: Regular expenses like gas, cellphone bills, and groceries present opportunities to capitalize on a rewards credit card. You will ultimately save money from rewards like cash back, points, or miles. Just don't undo rewards savings by carrying a balance and paying a bunch of interest.
For Large Purchases. Credit cards with 0% APR periods are great financing opportunities for big purchases. And they may offer extra safeguards that come in handy with a large purchase, such as price/purchase protection or extended warranty benefits. Using a rewards credit card will make the big purchase a little cheaper, too.
To Pay Off Debt. Using a credit card to pay off debt may sound contradictory. But if you have an existing high-interest debt, a balance transfer credit card could allow you to pay it off faster and for less money. Look for a balance transfer offer that doesn't charge a transfer fee and has the longest interest-free period.
When Traveling: Hotels and car rental agencies often put pre-authorized deposits or holds on your debit or credit card. It is better to have funds temporarily held up on a credit card than your checking account. It's also worth noting that credit cards are the cheapest way to convert foreign currency, so using a credit card overseas is an excellent idea – as long as you have one with no foreign transaction fees. Keep in mind that some credit card companies ask for notification before a cardholder starts traveling, so that they don't mistake card activity from a new area for fraud.

It's worth considering that your income and credit score might determine which scenarios you'll benefit from using your credit card. For example, if you have a high interest rate or low credit limit, financing big-ticket buys may not be an option. So start small, with putting one or two regular expenses like gas or a gym membership on your card. Pay it off in full each month to create a history of responsible credit use – and to avoid credit card debt.

Lastly, there are times when using a credit card is a bad idea. Consider yourself and your habits before you take this advice to use a credit card for everything. Yes, credit card use has its benefits. But most of those benefits come with a big responsibility to not spend more than you can repay in a reasonable amount of time, and none of those benefits outweigh the negative effects of prolonged credit card debt.

If you don't trust yourself to use a credit card for purchases, you can still build credit by simply having a credit card – even if you don't use it.

Should I get a credit card?

Upvotes

WalletHub

Yes, you should get a credit card. You should get your own credit card account if you're at least 18 years old, and you should get a parent to make you an authorized user on their credit card account when you are too young to get a credit card alone. There are many reasons to get a credit card, including convenience and earning rewards on purchases, but the best benefit is building the credit history needed to eventually land great interest rates when you need to borrow a lot of money, such as for a home or a vehicle.

Why Should You Get a Credit Card

Credit cards help build credit. Every month you pay your bill on time and keep your account in good standing, credit cards report good information about you to credit bureaus – even if you don't use the card at all.
Credit cards are convenient. Credit cards – especially Visa and Mastercard – are accepted nearly everywhere in the world, and it's much easier to keep track of a credit card than a wad of paper currency.
Credit cards are better to use abroad than cash or debit cards. As long as you don't get a credit card with foreign transaction fees, credit cards are a huge asset when traveling outside the U.S. You won't have to worry about changing money into local currency because it happens automatically at a low rate with a credit card.
It's easier to deal with credit card fraud than debit card fraud. All credit card networks have $0 liability guarantees for fraudulent transactions. When credit card fraud takes place, it's usually a simple matter of calling the card issuer to get the charges taken off your account. Debit card fraud isn't as easy to deal with, because it involves money that was taken from your bank account.
Many credit cards offer rewards on purchases. Most people welcome free money, and that's exactly what credit card rewards are. With the best rewards credit cards, you can get up to 6% back on some types of purchases, or up to 2% back on every purchase with a flat-rate cash back card.

When used responsibly, credit cards are a win-win situation. Plus, many credit cards give the opportunity to earn bonus rewards and enjoy perks such as free airport lounge access or 0% introductory APRs. There are even credit cards for people with bad credit - some of which can help rebuild damaged credit.

It's reasonable to be worried about the downsides of credit cards – namely, overspending. But don't give up on building credit as a result. Tools like secured credit cards and automatic payment features can help mitigate the risks for people who are new to credit cards, and you don't have to even use a credit card to make purchases for it to build your credit history.

If you aren't quite ready to take on the risk yourself, ask a parent or good friend if they can add you to their card as an authorized user. As long as the primary cardholder uses the card responsibly, authorized users get to build credit history without having to remember to pay the bill.

Ultimately, remembering these three critical rules of credit card use can go a long way toward ensuring credit is a positive in your life: 1) Always pay your bill in full and on-time; 2) Don't spend more than you can afford to pay every month; and 3) Always read the fine print before you apply. Do those things and your wallet will thank you.

Is it better to use a credit card or debit card on vacation?

Upvote

Ryan P Page, Staff Writer

It is better to use a credit card than a debit card on vacation because credit cards are more secure and more likely to help you earn rewards while you're away from home. Some credit cards also come with valuable travel perks like airport lounge access, free nights at select hotels, or a statement credit for TSA PreCheck. Similarly, if you have the right travel credit card, you'll benefit from travel insurance that can protect you and your possessions while you are on vacation.

Why It's Better to Use a Credit Card Than a Debit Card on Vacation

Rewards

Hundreds of credit cards reward you with points, miles or cash back for every $1 you spend. Choosing the right credit card for your credit score and spending habits can save you hundreds of dollars per year, which you can put toward a vacation. However, only a very small percentage of debit cards offer rewards at all, and only a handful can compete with what credit cards give you.

Better Fraud Protection

Credit cards offer better fraud protection than debit cards. Credit card users have a $0 fraud liability guarantee for all transactions, unlike with debit cards, and the money in your bank account isn't at risk when someone steals your credit card. When traveling to a new and unfamiliar place on vacation, that protection is likely to be very appealing.

Travel Insurance

In addition to $0 fraud liability protection, the right credit card can also protect you and your possessions while you're on vacation. If your card includes travel insurance, it can cover damaged or lost luggage, trip cancellation, damage to rental cars, and more. Make sure to check with your card's issuer or review the card's benefits guide before your trip to see what types of travel insurance your card may have.

More Options for International Travel

If you are heading abroad for your trip, you will want to avoid foreign transaction fees. Although both credit and debit cards are subject to this 2-4% upcharge, getting a credit card without a foreign transaction fee is a bit easier than finding a debit card with no foreign fees.

Best Credit Cards to Use on Vacation in 2023

No Annual Fee: Chase Freedom Unlimited®Chase Freedom Unlimited®Learn MoreLearn Moreon issuer's website
Great Initial Bonus: Chase Sapphire Preferred® CardChase Sapphire Preferred® CardLearn MoreLearn Moreon issuer's website
Best for Fair Credit: Capital One QuicksilverOne Cash Rewards Credit CardCapital One QuicksilverOne Cash Rewards Credit CardLearn MoreLearn More
Great for International Travel: Capital One Venture Rewards Credit CardCapital One Venture Rewards Credit CardLearn MoreLearn More

If you don't have a credit card for travel, or would prefer a card that helps you stay within a set budget, you can mitigate fraud concerns by getting a prepaid card. Unlike a debit card, prepaid cards are not connected directly to your checking account, which can help keep your finances safe while traveling.

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