What’s the difference between a credit card & debit card?

11 September 2017
They may look alike, but credit cards and debit cards serve very different purposes.

Both credit cards and debit cards are rectangular in shape. They both have a 16-digit card number, an expiration date, and a pin code. But beyond that, they function very differently.

This article will highlight how they are different.

What is a debit card?

To put it simply, a debit card is a card that allows you to transfer money from your banking account when making a purchase.

This is because a debit card takes the money you already have out of your transaction or savings account to pay for these purchases. If there’s no money in your account, you simply won’t be allowed to make the transaction.

Debit cards go by many different names: ATM cards, EFTPOS cards, Keycards, Cash cards and more. Whatever it is you call them, they are an effective way to shop in store or online without the added fear of going over your budget. With a debit card, you only spend what you have, and nothing more.

Case study: Christina restrains her inner shopaholic

Christina can’t resist a good bargain so it is all too easy for her to run up debts on her credit cards. After she pays off her last credit card bill, she decides to cancel her credit cards and get a debit card. Now, she can only buy things if she has enough money in her account.

‘This means I have to be conscious of what I am spending. It’s a great way to keep me from living beyond my means!’

Source: Money Smart

Canstar doesn’t rate debit cards, but we do rate savings and transaction accounts, which would be linked to your debit card.


What is a credit card?

A credit card is something Canstar has written extensively about – you can read all about this form of payment and compare different providers on our website here. Credit cards give the holder access to an unsecured revolving line of credit, allowing them to make purchases up to a specific credit limit.

Credit card users have a certain period to repay the money owed in full, or they have to repay what they owe plus interest. For some cards, interest is charged on all purchases and transactions from the day the transaction is made.

Credit cards can be extremely useful for people who have tight control of their finances. If you’re in-between paydays, then credit cards can give you a buffer for any purchases you need to make until your money arrives. It’s worth remembering it can be easy to fall into a trap with credit cards. According to ASIC’s debt clock, Australians currently owe an accumulative $32.47 billion in credit card debt!

There are several different types of credit cards too, each of which offers different benefits to the holder:

If you’re currently comparing credit cards, the comparison table below displays some of the low interest credit cards currently available on Canstar’s database for Australians looking to spend around $2,000 per month. Please note that this table features links direct to the provider’s website, and is sorted by Star Rating (highest to lowest), followed by provider name (alphabetical). Use Canstar’s credit card comparison selector to view a wider range of credit cards.

What’s the difference between a credit card and a debit card?

Different payment methods suit different situations, which is why many people use credit cards and debit cards. The primary difference between the two can be summarised into the following sentence:

A debit card is used for spending your own money from your bank account, while a credit card allows you to borrow money and repay it later”

The table below shows a comparison of the pros and cons of using credit cards and debit cards.

Credit card v debit card – pros and cons


Credit Cards

Debit Cards

  • Many come with reward programs, which can be redeemed for bonuses like flights
  • Use the bank’s money while in-between paydays
  • You can lock your account instantly if your card is stolen, so thieves can’t use it
  • Responsible users can improve their credit score, helping with future loans
  • Interest-free days can come in handy if you pay your bills on time
  • Helpful when trying to stick to a budget
  • Great for shopping online
  • Thieves spending power is limited to what’s in your account or daily spending limits if stolen
  • You can use them overseas
  • You can use them almost anywhere!
  • No risk of overspending
  • No interest is charged on your account
  • Easy access to cash from ATMs
  • Easier to find and apply for
  • You are charged interest on purchases if you fail to make your repayments on time
  • These interest rates can be higher than 20% p.a.
  • Missed repayments can damage your credit score
  • There are sometimes extensive fees on credit cards
  • Poor spending habits can lead to large amounts of credit card debt
  • Poor spending habits can lead to large amounts of credit card debt


  • Some banks can charge extra fees, like monthly service charges or transaction fees
  • You can’t improve your credit score through frugal spending
  • No rewards points
  • Lower levels of fraud protection
  • No access to money if there is nothing in your account

Credit cards v debit cards – which do Aussies prefer?

Data from the Reserve Bank of Australia (RBA) shows that credit cards have historically been more popular than debit cards. In August 2004, 49% of card purchases were made on debit cards while 51% were made on credit cards.

Since the GFC however, debit cards have become increasingly popular. In August 2014, 66% of card purchases were made with debit cards – a 17% increase.

This difference has become even more pronounced in the last few years. July 2016 saw 406 million transactions made with debit cards compared to 195 million with credit cards (67% vs 32%).

In June 2017 – the latest month recorded in the RBA’s monthly credit card statistics –  449 million purchases were made with debit cards, although this was actually a decrease from 469 million in May. Comparatively, there were 219 million credit card purchases made, falling from 237 million in May. Overall, Australia now has 44 million debit accounts and ‘just’ 16 million credit card accounts.

This isn’t surprising, given that debit cards are more accessible and are used for everyday purchases, while credit cards are generally used for larger items like bills and shopping trips. If you’ve decided a credit card is the right option for you, you can compare your options with Canstar:

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