Find out whether a pre-paid credit card or a debit card is the better option for you. Understand how the two differ in their functions, despite appearing practically identical.
It can be difficult at first glance when choosing a piece of plastic to pay for a purchase to differentiate between the debit cards and credit cards lurking in your purse or wallet. Both types may carry the Visa or MasterCard logos, they may have the same colours and look, and they are certainly identical in shape.
However, debit and credit cards are very different creatures. The basic difference is that a debit card (EFTPOS card) is linked to a bank account and any purchases or withdrawals made with it debit the funds in the account. Purchases or withdrawals on a credit card draw down on a limited pot of credit that has been pre-agreed and that must be paid back in full usually within 55 days to avoid interest charges.
EFTPOS vs pre-paid credit cards
The difference between these two types of card is less stark but they still operate in different ways. Like a debit card, a pre-paid credit card does not work on the basis that the customer has a credit facility they can tap. Pre-paid credit cards are loaded with the customer’s own cash, and in this respect they are far more akin to a gift card than anything else.
The type of account being debited differs in that the EFTPOS card debits a linked bank account, which is not the case with a pre-paid credit card, which comes with an account tied only to the card and that must be loaded with cash to start functioning.
The benefits of a pre-paid credit card include the convenience of carrying plastic when a standard credit card has been refused, usually on the grounds of a poor credit rating. As these cards are not actually accessing any credit, it is easy to acquire one and there is no credit check made for approval. Choosing one of these cards over a bank debit card may come down to the inability for some reason to establish a bank account, perhaps because the person is relatively new to Australia and does not yet satisfy the application requirements.
The security situation is pretty similar with EFTPOS cards and pre-paid credit cards. The law limits personal liability for fraudulent use of debit or credit cards to $50, and this includes pre-paid credit cards. However, pre-paid plastic carrying the Visa or MasterCard logo is further protected by the zero liability guarantees both these brands offer. The only potential drawback with a debit card is that fraudulent transactions could get lost within a bunch of genuine transactions on a busy statement.
The other main difference between the debit card and pre-paid credit card is in the charges that may apply. The pre-paid option can be expensive in that a fee applies each time cash is loaded onto the card, and ATM withdrawals may also attract a fee. With a debit card, fees are fairer, but the possibility exists that careless use of the card could cause the customer to break their overdraft limit, whereas a pre-paid credit card will simply not work if presented for a transaction that exceeds the available cash.
