Credit card vs debit card

Cards are the most popular way to pay in Australia, with data from the Reserve Bank of Australia showing they make up around 75% of all payments. Almost all adult Australians have more than one debit card and many have a credit card, with Finder analysis showing there are around 40.9 million debit cards in Australia and over 13.4 million credit cards in circulation.

So, what's the difference between a credit card and a debit card? And is one better than the other? We've put the details of each card side-by-side to help you decide when it's better to use a credit card or debit card for your spending.

Credit cards vs debit cards at a glance

Credit cards

How they work

You can use a credit card to spend up to a set amount (your approved credit limit). You're required to pay back what you charge to the card, but not all at once – you can pay it off over time, you just need to pay at least the minimum amount listed on your statement. Most credit cards can be added to digital wallets.

Costs

• If you don't pay off your credit card in full by the statement due date, you'll be charged interest.
• The average standard interest rate is currently at 20.78% p.a. according to the RBA.
• Many cards also charge an annual fee.
• On top of these account costs, credit card surcharges can range from 1% to 2% of the transaction value, compared to around 0.2% to 1% for debit cards.
• If you're travelling overseas or shopping online with overseas brands, expect to pay an international transaction fee of around 2% to 4% (unless you get a credit card that offers no foreign transaction fees).

Perks

Credit cards are a popular way to free up cashflow and earn reward or frequent flyer points on your everyday spending.

You can get credit cards with perks like complimentary overseas travel insurance – great if you're going overseas – and airport lounge passes, plus concierge services that can help with travel, dining and entertainment bookings.

Credit history

When you apply for a credit card, this is listed on your credit report whether or not you're approved. If you use your card responsibly and make timely repayments, having a credit card can help improve your credit score.

Security

Most credit cards offer 24/7 fraud monitoring services to help protect you against suspicious activity. If someone uses your card for fraud, the transaction amount will often be refunded under a zero liability policy. If your card is used to make a fraudulent transaction, it won't impact your bank balance or savings.

Finder survey: How do Australians prefer to pay when travelling overseas?

Debit cards

How they work

Debit cards are linked to your everyday bank account so you can spend your own money. This means there are no repayments, although you do need to have the amount of money needed in your bank account when you pay with a debit card.

If you have a Visa or Mastercard debit card, you can often add it to mobile wallets. There are also some virtual debit cards, although this is more common with business accounts or gift cards.

Costs

• Debit cards don't usually attract interest charges because you're using your own money.
• Most everyday bank accounts that offer debit cards also offer $0 account fee options, meaning you can often use a debit card without paying any extra costs.
• It also costs merchants less money to process debit card payments, which is why there is often a lower surcharge (or no surcharge) compared to credit card transactions.
• Similar to credit cards, an international or currency conversion fee may apply when you're travelling overseas or shopping online with companies based overseas, unless you get a debit card with no foreign transaction fees.

Perks

In comparison to credit cards, there are very few debit cards that offer you reward points or other complimentary extras. These are 3 debit cards that do:

• Bankwest Qantas Transaction Account. This debit card earns Qantas Points for money in your account and for eligible purchases.
• Citibank Plus Everyday Transaction Account. The debit card linked to this account gives you access to exclusive travel and shopping offers through Citi World Privileges and Mastercard Travel Rewards.
• NAB Platinum Visa Debit Card. Offers cashback on contactless purchases, as well as complimentary travel insurance and purchase protection insurance.

Apart from these cards, you'll usually be limited to whatever offers Visa or Mastercard have available for cardholders.

Credit history

Unlike credit cards, your debit card account details aren't listed on your credit report and don't impact your credit score.

Security

Like credit cards, debit cards offer a zero liability policy, which means you will be refunded for fraudulent transactions. Some debit cards also offer fraud-monitoring services. If you're subject to fraud, you will be left without your money until the bank has fully investigated the claim. This could take a few weeks or several months.

Our expert says

"Debit cards are great for cost control and controlling everyday spending. When travelling, I'd always take a credit card as well. The reason? Some hotels won't take a debit card for your security deposit; others will but withdraw the deposit immediately and then take a fortnight or more to refund it. The same goes for cruises, with many cruise lines simply not accepting debit cards on board. So a credit card backup can still be useful even if your main travel budget is already available from your debit card "

Angus Kidman

Editor-at-large

Is it better to have a debit or credit card?

With a credit card, you get access to money you might not having in savings, with the flexibility of paying off the balance over time. You also have more options to collect rewards and other perks.

But a debit card usually means you will pay fewer fees, and less chance of ending up in debt, because the money is coming straight from your bank account.

Choosing between a credit card vs a debit card really comes down to your goals and habits. One thing to keep in mind is that a credit card, when used responsibly, will help you build your credit rating. So, it might be the better choice for you if you are planning to buy a home in the next few years, as it will help you build your credit up.

Written by

Amy Bradney-George

Editor

Amy Bradney-George was the senior writer for credit cards at Finder, and editorial lead for Finder Green. She has over 16 years of editorial experience and has been featured in publications including ABC News, Money Magazine and The Sydney Morning Herald. See full bio

Amy's expertise

Amy has written 565 Finder guides across topics including:

• Credit cards
• Frequent flyer
• Credit score
• BNPL
• Money management
• Sustainability