The difference between credit and debit cards

When applying for a bank account, it is essential to know what the difference is between a credit and debit card. 

This guide should summarise efficiently why you should opt for either a debit or credit card - but if you are still unsure then it is recommended to settle for a debit card. This is because credit cards can become very expensive and can easily put you in a lot of high-interest debt if you're not careful.

Debit cards

Debit cards are issued by your bank and are directly linked to your bank account. Whenever you make a transaction using a debit card, e.g., in a shop or online, the funds will be immediately debited from the account which the card is linked to. In addition to in-store and online payments, debit cards can also act as an ATM card, allowing you to withdraw money from any cash machine.

There are several types of debit card, but they all perform the same functions as above. It should be noted however that some are more widely accepted than others. If you're using a debit card in a shop or online, you need to make sure that the type you have is accepted. Most student accounts come with a Maestro (formerly Switch) or Visa debit card, which are the most widely accepted.

Credit cards

Credit cards can be issued by your bank, but are also available from other companies who only provide credit cards. You can apply for a credit card with any provider (subject to their eligibility criteria), which may or may not be your main bank.

debit card credit card

Credit cards let you buy goods and services straight away and pay later, so using one is essentially like taking out a short term loan. This can seem like a convenient way of paying for goods and services, but be aware that if you don't repay the full balance to credit card provider within a certain time you will be charged interest on the outstanding amount borrowed, often at a fairly high interest rate. This interest-free period varies, but is generally up to 56 days. You have to be very careful to keep track of your spending when using a credit card as you can run up significant debts without noticing. For longer-term borrowing, taking out a bank loan might be cheaper as this could have a lower rate of interest. 

If you're buying anything over £100, paying for this using a credit card can give an extra form of protection in case of anything going wrong with the purchase. This stems from section 75 of the Consumer Credit Act 1974, which states that if you pay for goods worth over £100 on a credit card (even if only partially paid by credit card) then the credit card provider is equally liable with the retailer. If the merchant goes out of business and you don't get your goods or you have a problem covered by your statutory rights, you can go straight to the card issuer and get a full refund!

You can withdraw money from cash machines on a credit card. However, this should be avoided in most cases as it is often very expensive - interest starts to accrue immediately once the withdrawal is made and there is also usually a fee just for for making the withdrawal.

When dealing with credit card companies, APR refers to Annual Percentage Rate. It is a measure of the actual interest you would pay over a whole year as opposed to the monthly percentage rate and is intended to give a more accurate idea of how much you're being charged when you borrow money. Generally, the lower the APR, the less money you will have to pay back in interest. It is important to make sure you compare the APR of different credit cards when deciding which one to take out. Some card issuers may offer a low rate of interest for an initial period but this will increase at the end of that period.

Remember: if you pay back the minimum you're not only not paying back the initial bulk of debt, but you're also gaining "interest" (in a BAD way) from the bank. If you use your credit card, make sure you pay it off in full every month if at all possible.

It may be useful to get a credit card for emergencies only. Make sure you know the PIN or it'll be of no use in such an emergency!

See Also 
Student bank accounts 
Student Finance Tips 
TSR Freshers Pack