Credit, debit and store cards
Understanding your options
It seems that everywhere you go these days, you're being offered a card of some description: loyalty cards, store cards, credit cards. And everyone from banks to football clubs seem to have their own version of a credit card, so its well worth knowing more about them and what to look out for before you sign up for one.
Essentially, there are two types of card:
Credit-based - which enable you to buy thing and pay for them later, either in one go, or by instalments. This includes credit cards (such as Visa, MasterCard or American Express) and store cards.
Debit cards which can be used to withdraw cash and as a method of payment, but the money comes directly from a bank account linked to the card, so you can only spend what you have.
Credit cards
There are hundreds of different credit card providers, from high street banks through to football clubs and supermarkets - but all will either be a Visa or MasterCard. When you take out a credit card you will be given a credit limit, this is the maximum amount you are able to spend on the card account. Credit cards allow you to pay for goods, or withdraw cash, almost anywhere in the world. Goods and services paid for by credit card are protected by an insurance, so that if the company doesn't fulfil your order (such as your holiday airline folding), you'll be covered and able to claim your money back.
They can be extremely convenient, but are best used if you want to borrow a small amount of money for a short time. If you don't pay off the balance in full each month, you will pay interest. Often you will be given an introductory interest rate or APR, which may even be 0%, making it seem like an attractive offer, but always check what the rate will be at the end of the introductory period. If you decide to apply for a card, do your research and look for the best deal on a comparison website.
At a glance:
- Convenient way to pay for goods all over the world
- Purchase protection
- Expensive debt if you only pay the minimum balance each month
Store cards
Store cards tend to be something that we agree to on impulse when shopping, and most often because there's an extra discount on whatever you buy if you take one out. They work in the same way as a credit card, but only allow you to purchase goods from that store or chain. And while they may seem like a convenient way to pay for something you really want but don't have the money for, it's probably about the most expensive, despite the introductory discount, unless you pay it off straight away. Store cards tend to have very high rates of interest or APR, sometimes double the rate of a credit card.
At a glance:
- Allows you to spread the cost of a purchase
- High rates of interest if you only pay the minimum
- Only valid for the store or chain you hold the account with
Debit cards
A debit, or cash, card allows you to pay for things in shops or online, to pay bills, and to withdraw money directly from a bank account using a cash machine. Unlike a credit or store card, it only lets you pay for things that you can actually afford. Most banks set a limit as to the amount of cash you can withdraw each day from a hole in the wall machine. But there's no limit as to how many times you can use it to pay for things each day, as long as you have the money in your account.
At a glance:
- Normally no interest as it's a direct payment from your current account unless you are using an overdraft facility
- Accepted in many countries
- Allows you to withdraw cash from ATMs all over the world