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Published June 28, 2021
Updated July 15, 2021

Credit Cards vs. Debit Cards vs. Charge Cards: Differences Explained

A debit card spends money you already have in your bank account. A credit card spends money you can borrow, up to a limit. Charge cards spend borrowed money and do not have a pre-set limit. Each has advantages and disadvantages.

They might all fit in your wallet, but not all cards are equal. If you’re a little fuzzy on the differences between a credit card, a debit card, and a charge card, read on. We’ll cover the basics, as well as when it’s best to choose one type of card over the others.

What is a debit card?

A debit card is a payment card that allows you to make a purchase by taking the money directly from your bank account. You’ll usually get a debit card from your financial institution when you open an account.

What is a credit card?

A credit card is a payment card that allows you to borrow funds from a financial institution. The amount is added to your account as a pending balance that will accumulate as you use your card. You are required to pay off the balance, at least in part, each month. If you are unable to pay off the full amount, you will be charged interest.

Credit cards have pre-set limits that restrict how much you can charge to the card.

What is a charge card?

Like a credit card, a charge card is issued by a financial institution and allows you to borrow money and pay it back on a monthly basis. Unlike credit cards, charge cards do not have a pre-set spending limit.

Credit card vs. debit card

The main difference between credit cards and debit cards is where the money comes from when you make a purchase. Debit cards use the money you have available in your bank account. Credit cards borrow money from a financial institution, and if you can’t pay it back on time, you will be charged interest.

Both types of cards have limits in terms of how much you can spend. Debit cards typically have a maximum daily withdrawal amount, and you can only spend money that’s actually in the account. Credit cards have a maximum balance, or credit limit, which you can spend however you like.

Additional differences include fees and perks. You generally don’t have to pay an annual fee for a debit card, as it comes with your bank account. Many credit cards have annual fees but they also often have perks or rewards programs that most debit cards can’t match.

Finally, a debit card can’t help you build your credit. But a credit card can because your issuer will report your payment history to the credit bureaus.

Charge card vs. credit card

Charge cards and credit cards work in similar ways: They both borrow money from a financial institution and expect you to pay it back in a timely manner. Credit cards allow you to spend however you’d like as long as you don’t reach the credit limit, which means they’re more flexible and allow you to carry a balance from month to month. You’ll be charged interest on that balance, but if you pay the required minimum, you can avoid additional fees.

Charge cards have no pre-set limit, so you can spend as much as you’d like. However, you cannot carry your balance past the end of the month. If you’re unable to pay your bill in full, you’ll face harsh penalties such as very high interest rates and you’ll risk losing your account.

Charge cards often offer travel rewards, while credit cards come in a variety of types, such as rewards, low-interest, and secured.

Charge card vs. debit card

Comparing a charge card to a debit card is similar to comparing a credit card vs. a debit card. The main difference is that a charge card has no spending limits, whereas your debit card (and credit card) do. Fees and interest aren’t a concern with debit cards, whereas you need to watch out for both with charge cards.

When to use a credit card, charge card or debit card

If you struggle with managing your finances and are concerned about debt, your best bet is to stick to a debit card. That way, you’ll never spend more than you can actually afford to pay, and you won’t face high interest charges or fees.

If you’re trying to build your credit and are reasonably good at keeping on top of your payments, then consider getting a credit card. First, take the time to choose the right credit card for your needs and lifestyle.

If you always pay your credit card bill on time, consider a charge card. Some options may offer better travel rewards than the travel credit cards you qualify for. A charge card could also be a good option if you have a large purchase coming up — as long as you have a plan to pay it off by the time your bill is due.

FAQs

    • Are there fees for debit cards?

      You will not have to pay a fee to get a debit card (unlike many credit or charge cards that charge annual fees). However, you may be charged a fee when using your debit card at an ATM not associated with your financial institution or abroad.

    • Which type of card costs more?

      Credit cards and charge cards cost more than debit cards. Their annual fees, if any, usually depend on the card’s perks. Cards with better perks and higher earning rates usually have higher annual fees.

    • Which type of card is safer?

      All of these cards are safe by themselves. It’s up to you to use them responsibly to avoid spending more than you can afford and to protect yourself from identity theft. If any of these cards are lost or stolen, there are protections in place — just contact your financial institution. Having your debit card compromised can be worse than having a credit or charge card compromised, as the money being stolen belongs to you (rather than the financial institution).

    • Which type of card is better for accessing cash?

      Debit cards are your best bet for getting cash. You can withdraw cash from an ATM using credit and charge cards, but it’s best to save that option for emergencies: You’ll be charged a high interest rate and there is no grace period, so interest starts accumulating right away.

About the Author

Hannah Logan
Hannah Logan

Hannah Logan is a writer and blogger who specializes in personal finance and travel. You can follow her personal travel blog EatSleepBreatheTravel.com or find her on Instagram @hannahlogan21.

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