The prime distinction between a debit card and a credit card is that the debit card uses your own money to make payment; when you use your credit card, you are actually borrowing money from your bank to make payment.
A debit card is linked to your current account. When you use your debit card, you are accessing the money in your bank account and if you use the card to pay for goods or services, your bank balance will immediately be reduced by the amount you have paid for these.
To avoid the embarrassment of having your debit card transaction declined due to "insufficient funds", you should keep track of the funds in your account.
Debit cards
An advantage of using your debit card to pay for transactions is that you don't have to carry large sums of cash with you. You can use a debit card to make withdrawals from an ATM or a till point at a participating retailer, to access mini-statements at an ATM or to pay for purchases at a shop's till point.
With most debit cards, each time you use them, you are required to swipe the card at a till point, and enter your personal identification number (PIN) on a keypad to authorise the transaction and to verify with the bank that you are the owner of the account.
The bank that the shop or service provider uses will contact your bank through a linked computer system to verify that you have sufficient funds in your account to pay for the transaction.
The information is then electronically relayed back to the store and the transaction is either accepted or declined in a matter of seconds.
When you use your debit card to pay at a till point, it is an online transaction. However, if the computer link between the business, its bank and your bank is not working, the transaction will be declined because the bank will be unable to verify whether there are sufficient funds in your account.
Your PIN is a secret number that is designed to protect the security of your bank account and should not be revealed to anyone. You shouldn't use a number - such as your birth date or your phone number - that criminals can easily guess should they steal or obtain access to your personal details.
Never write your PIN on the back of your card or on a piece of paper that you keep in your wallet or bag because this will make it very easy for criminals to access your funds if they steal your card.
You should keep your debit card in a safe place, in much the same way that you would never leave cash lying around.
If someone does steal your debit card and enters an incorrect PIN three times, the card will automatically be blocked. The thief will not be able to use the card and the bank will issue you with a new card and a new PIN.
Some debit cards carry the Visa or Mastercard logos, which means they will be accepted by any business that displays these logos.
Keeping track
Most banks offer a text message (SMS) service that notifies you through your cell phone every time a transaction is performed on your account. The SMS will give you details of the transaction, as well as your remaining balance.
Not only does this help you keep track of your funds, but it is increasingly being used as a deterrent against fraud because it immediately alerts you to any unauthorised activity on your account.
Keep all your till slips until the end of the month and then cross-check them against the transactions showing on your bank statement to ensure that no unauthorised transactions have been performed.
Every time you use your debit card to pay for a transaction at a till point, you are charged by the bank. However, depending on the account payment option you have with your bank, this fee may not be deducted from your account.
For example, customers on Absa's current account packages, rebate banking options and management fee pricing options are not charged for debit card transactions because these options either include a number of free debit card transactions, or, in the case of rebate banking, cancel out all applicable banking fees, provided you maintain a certain balance in your account.
However, if you have an Mzansi or a Flexi account with Absa, you are charged R2.10 and R2.65 respectively each time you make a debit card transaction.
If you have a current account with First National Bank (FNB), you pay R1.75 a transaction for PIN-based debit card purchases on the pay-as-you-go option.
However, point-of-sale purchases are included in transaction bundles such as the Fee Saver and Fee Manager options. This week, FNB introduced a new pricing structure for cheque accounts. For R66 a month, you can make unlimited electronic transactions.
This means you do not pay anything extra for ATM transactions, online banking, telephone banking or point-of-sale purchases, regardless of the number of transactions that you make.
However, if you do choose to make a branch withdrawal on this option, you will be charged R25 plus 1.05 percent of the transaction value. You will also pay a R25 fee if you use any other bank's ATM.
Depending on the type of bank account you have, you may have access to an overdraft facility.
For example, if you have an overdraft of R3 000, this means that when the funds in your bank account run out, you will still have access to a further R3 000 that will be loaned to you by the bank.
When you use your overdraft facility, your bank balance will reflect as a negative figure. You should try to avoid using your overdraft unless it's necessary because you are charged interest for using this benefit and it is very easy to use an overdraft regularly.
You can end up being unable to clear your overdraft each month despite the fact that you earn a regular salary.
You might have a cheque account with a cheque card. This card works in much the same way as a debit card in that you are accessing your own funds each time you use the card. But, unlike a debit card, you can use a cheque card to make internet or over-the-phone payments.
Credit cards
A credit card differs from a debit card in that when you use a credit card, you are borrowing money from the bank and not accessing the funds in your account.
There are two types of credit facilities you can use when you pay for an item or service with a credit card: straight and budget.
On the straight facility, funds are available to you interest-free for up to 55 or 57 days. However, the interest-free credit is calculated using a 30-day billing cycle, with payment due 25 to 27 days later.
So if you perform a transaction on the last day of the billing cycle, you will enjoy only 25 or 27 days of interest-free credit. The billing cycle will be reflected on your credit card statement, which is mailed to you every month.
The interest-free credit applies only if you pay the full outstanding balance on your credit card either before or on the due date.
If you make only the minimum payment due on your credit card each month rather than settling the full balance, you will be charged interest on the outstanding amount that you still owe.
Although you can withdraw cash from your credit card account at an ATM, you should reserve this for emergencies because you are charged interest on the cash amount you withdraw from the time that you make the withdrawal.
You are charged a fee for withdrawing cash from your credit account. For example, Absa charges you R3 for the first R100 that you withdraw and 95 cents for every R100 thereafter.
If you have an FNB credit card, you will pay R5 for withdrawals of R500, R10 for withdrawals of R1 000 and R15 for withdrawing an amount of more than R1 000.
On the budget facility, the amount of credit you may access is usually more than that on the straight facility, although you have the option of changing this ratio with your bank. You have the choice of structuring your budget facility repayments over a period ranging from six to as much as 48 months.
Although the minimum monthly repayments on the budget facility may be lower than those on the straight facility, you are charged interest from the day of your purchase until the full amount is paid.
You are charged the same interest rate regardless of the repayment period you choose, but the longer the repayment period, the more interest you will pay.
National Credit Act
The interest you are charged on your credit card varies from bank to bank and it also depends on whether your credit facility was opened before or after the National Credit Act (NCA) came into force in June last year.
Card accounts that were opened after the NCA came into effect have interest rates that are based on your credit record and these rates can be as low as 17 percent. Card accounts opened before the NCA took effect have interest rates between 23 percent and 26 percent.
In terms of the NCA, the maximum interest that you can be charged on a credit facility currently is 35.3 percent (calculated by multiplying the repo rate by 2.2 and then adding 10 percent).
With both a debit card and a credit card, you should contact the bank as soon as possible in the event of theft or suspected fraud. Unless you have compromised your PIN by writing it down or you failed to report your card as lost or stolen, the bank will cover any fraud costs.
When you make a transaction or purchase, you have to decide if you are going to use your own money or borrow money from the bank.
If you choose to use your credit card and borrow money from the bank, you should pay the full outstanding balance at the end of the month. If you do this, you will be borrowing money from the bank at no extra charge. Meeting the minimum monthly repayments means you maintain a good credit record but you could pay dearly for borrowing the bank's money.
An advantage of using your credit card is that you do not pay any fees when you present your card at a till point. This can work in your favour if each month you transfer more money to your credit card than the amount that you spend when you use your credit card.
A credit card may not be a good idea if you are not a disciplined spender because it offers you the temptation to spend money you don't have.
You will have to pay an annual or monthly fee for your credit card. If the credit card is linked to a banking package, such as Absa's silver, gold or platinum packages, you will not have to pay monthly fees.