Q:What is the difference between an ATM card, a debit card, and a credit card?
A:Some people assume that an ATM and debit card are the same. Yes, they are both used to access money in a bank account, however, there are differences between the two card. Additionally, how does a credit card compare to the ATM and debit cards? Let’s take a look at the differences between all of these cards.
The ATM (Automated Teller Machine) card gives the user of the card access to their money in a bank. The card user inserts the card into an ATM, enters a pin, and can withdraw or deposit funds into their bank account via the machine. Its primary purpose is to access funds from an ATM and not for purchases at a place like a store.
A debit card can be also be used to access a person’s bank account through an ATM just like the ATM card. However, the card can additionally be used to make purchases at retailers or other merchants by swiping or inserting the card at checkout like you would a credit card. When you use your debit card, the funds come directly out of your checking account. There is not a monthly bill provided since your transactions are paid through your checking account and are not borrowed funds.
The common types of credit cards are Visa, MasterCard, American Express, and Discover. The card allows the user to borrow funds from the credit card issuer to complete a transaction such as a purchase at a store. The person pays back the credit card company monthly or over time. Credit card companies typically require at least a minimum payment be made each month. The money that is not paid back in full by the next statement date is charged interest. The annual percentage rate on a credit card is approximately 15 percent on average.
Comparison of Cards
|ATM Card||Debit Card||Credit Card|
|Access Funds from ATM||Yes, with a pin.||Yes, with a pin.||Yes, if credit card company issues a pin. Generally higher interest for a cash advances (withdrawals) from an ATM.|
|Funds Associated with a Bank Account||Yes||Yes||No|
|Monthly Billing Statement||No||No. Debits come directly from checking account.||Yes|
|Interest Paid||No||No||Yes, if balance not paid in full.|
|Amount Available to Access||Account balances||Account balances||Credit limit established by credit card company.|
|Affects Credit Score||No||No||Yes|
Advantages of Each Card
- ATM Card: ATM cards typically only allow access to your funds by going to an ATM. When you need cash or want to make a deposit, you physically have go to the machine to complete these transactions. This can be beneficial to someone that has difficulty managing money. An ATM card may help prevent overspending since you have to withdraw cash. For many people, spending cash is a lot harder mentally than swiping a card.
- Debit Card: Debit cards are convenient because they can be used for point of sale transactions. You simply swipe your card (or insert a chip card) at a place like a grocery store and the funds come directly out of your checking account. There is no need to worry about a monthly bill since you are using your own funds to pay. Additionally, most places today accept debit cards, so all you need is your card when going out. The card saves you from carrying around a wad of cash.
- Credit Card: A credit card is beneficial because it can help you build your credit if you pay your bills on time. If you sign up for a rewards card, you can receive things like cash back, airline miles, or other perks just for using the card. Furthermore, a credit card provides the ability for delayed payment. Credit card companies usually require payment of at least a minimum balance only once a month.
Disadvantages of Each Card
- ATM Card: You typically do not have the ability to make point of sale purchases with your ATM card. In order obtain cash you need to locate an ATM. A fee may apply if you use your ATM card at a machine not associated with your bank.
- Debit Card: It can be easy to lose track of how much you spend using a debit card. Overdraw your account or use your card too much for transactions and the bank may issue fees. Additionally, if the wrong person gets access to your card, they can drain your account if you do not catch them in time. It can be a big time hassle to dispute fraudulent debit card transactions.
- Credit Cards: The obvious disadvantage here is if you fail to make timely payments, your credit score will suffer. You must pay off the balance each month, otherwise the credit card company will charge interest. Additionally, credit card balances can accumulate quickly if you are not careful. It is easier to spend on credit then when the money is coming directly out of your bank account. Lastly, credit card fraud is a serious issue and dealing with clearing up fraudulent charges with the credit card company can be a huge pain.