The Right Card for the Right Reason
October, 2013
Trying to decide between a credit card, debit card, and stored value card? Having a hard time deciding which is best for you? Depending on the
circumstances, you may want to use all three!
You usually have the option to use credit, debit, or stored value cards to pay for anything you buy. The different types of cards look alike, down to
the Visa or MasterCard logo and 16-digit account number, but are not the same. Each comes with different advantages, disadvantages, and legal
protections. To get the most from these modern conveniences, make sure you understand the differences.
Credit Cards
Having been around since at least 1920, credit cards are the senior citizens of the group. Comparison shop and read the small print before you apply
for any credit card. Many retailers and financial institutions offer credit cards with terms targeted to various groups depending upon credit histories
and credit scores. Interest rates and other terms vary considerably. When you use a credit card, the retailer submits the charge and immediately
receives payment from the credit card company. The credit card company sends you a bill (statement) up to a month later. You have use of the item
or service without handing over any of your money. If there is a problem with your purchase, you can dispute the charge with the credit card
company and withhold payment until the problem is resolved. If the card is stolen, as long as you report the loss within 24 hours, you are liable for no
more than $50 in unauthorized charges. These protections make credit cards a good choice for large purchases, on-line purchases, and travel
arrangements.
Debit Cards
A debit card is a convenience that most financial institutions offer to checking and savings account holders. Use your debit card at an ATM
(Automated Teller Machine) or POS (Point-of-Sale) terminal and the money will be withdrawn from the account associated with the card. The
money usually comes out of your account immediately, but the withdrawal sometimes may not occur for several hours or even a few days. If your
debit card is stolen and used illegally, as long as you report the missing card within two business days, you are only responsible for up to $50 of
unauthorized transactions. However, the money will likely have already come out of your account. The financial institution may need several days to
resolve the issue and restore funds to your account. Never use your debit card to hold (guarantee) a hotel room or rental car because the hotel or
rental car agency places a hold on a portion of your available balance. The same thing happens when you pay at the pump before filling your vehicle
with gasoline. The hold means you will not be able to withdraw those funds for other uses unless and until the hotel or rental agency releases the
hold. The hold may cause checks, automatic bill payments, and other transactions to bounce because of insufficient funds in your account.
Stored Value Cards
Stored value cards are the new kids on the block. A stored value card is like a digital wallet filled with a specific amount of electronic cash. Stored
value cards are extremely popular in Europe, and are gaining popularity in the United States. The most common type of stored value cards are the gift
cards available from many retailers and financial institutions. Be sure to read the terms and conditions for any hidden fees, and try to use your card
right away. Other uses for stored value cards include food plans at colleges and universities and preloaded passes for mass transit fares. Many fast
food chains and coffee shops now offer cards that allow the holder to load (add) money on to the card. Losing a stored value card is like losing cash-anyone who finds it can use it. In some cases, with appropriate documentation (such as a receipt with the unique identification number for the lost
card), the provider of the stored value card may replace the lost card. More often, any remaining value is lost.
The most important difference between credit, debit, and stored value cards is when the money actually leaves your hands. With a stored value card
you pay the face amount of the card before you make any purchases. With a debit card the amount of any purchase or withdrawal comes out of your
bank account shortly after the transaction. With credit cards you don’t pay until you receive a statement. Credit, debit and stored value cards are
financial tools that allow you to access funds in a convenient way. You will probably find a good use for all three. Understanding how each type
really works is the key to using them effectively. For more information on these cards and how they work, contact me in the Gilmer County
Cooperative Extension office.
Source: Michael Rupured, UGA Cooperative Extension Family Financial Management Specialist
By: Renee Dotson, County Extension Coordinator • rdotson@uga.edu • www.ugaextension.com/gilmer
UGA Cooperative Extension, Gilmer County • 1123 Progress Road, Suite A • Ellijay, GA 30540 • Telephone (706) 635-4426 • Fax (706) 636-4426
Agriculture and Natural Resources • Family and Consumer Sciences • 4-H Youth
ugaextension.com
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