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Credit vs. Debit: Know the Differences

Dec. 1, 2015
3 mins
A man online shops on his desktop computer using his credit card

We all carry credit and debit cards in our wallets, but when it comes time to pay, which one you reach for can leave an impact in a few different ways. Which option you choose is ultimately up to you, but it’s important to understand what goes on behind the scenes since debit and credit cards are very different.

The Applicable Fees

Debit cards will always have fewer fees since you’re only spending the money you have available, whereas with credit cards you could be hit with annual fees, interest charges, and other fees and penalties.

It should also be noted that merchants are only charged a low flat-fee rate when customers choose to use Interac Debit. But when credit is chosen as the method of payment, merchants pay 1.5% – 3% of the total price. These fees add up over time, so if you choose debit over credit, you’re helping businesses with their bottom line.

One is More Rewarding Than the Other

The major draw of credit cards is the rewards that they offer. Cash back, travel rewards and store credit are just a few rewards you can choose from. Credit cards may also give you additional benefits such as extended warranty and insurance. When signing up for a new premium credit card, you’ll be offered a big signup bonus, but be sure to factor in any fees associated with the card.

To be fair, there are two debit loyalty cards currently available: The Scotiabank Scene debit card, and the RBC Royal Bank Shoppers Optimum client card. Interac has also recently collaborated with various merchants to develop innovative loyalty and rewards campaigns.

Stricter Spending Habits

Since debit cards only give you access to funds that you currently have available, it’s much harder to overspend. Every debit transaction is pushed to your account immediately so you can easily keep track of your spending.

It’s possible to be a responsible spender when using credit, but it has been proven that people spend more when using credit over debit or cash. It’s also estimated that just 60 per cent of Canadians pay off their credit card balances in full each month, so that’s a lot of interest charges people are paying.

Security Features

From a security standpoint, Canadians using debit will always be safer since the number on your card is strictly an identifier. Each debit transaction you make is assigned a unique number that never links directly to your account. Thieves can still clone your card, but without your PIN, it’s extremely difficult to make fraudulent charges.

With credit cards, your account number is physically on your card, and many merchants store this information in their internal system. If there’s ever a data breach, or someone is able to write down your credit card number, then you’re potentially at risk. That being said, both Interac debit and credit cards have a zero liability policy, so if you’re a victim of fraud, you will be reimbursed.

The Final Word

In the end, it really is just a preference. If you’re good at managing your money, then you might as well take advantage of the benefits that credit cards offer. Those who prefer to keep costs down and like to see exactly where their money is going should stick to debit. Just keep in mind that using credit cards is still the best way to build a solid credit history, so you can’t avoid them completely.

Barry Choi

Barry Choi is a personal finance and budget travel expert at He has been quoted by media in Canada and the United States including The Financial Post, The Toronto Star, Business Insider, The Globe and Mail, and has appeared on HuffPost Live.

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