Given that debit cards can now also be used for MasterCard or Visa transactions, you may be wondering why it matters. The heart of the matter is where the funds come from.
When you use a credit card, the money is loaned to you by the bank first, and you pay it back later. When you use a debit card, the money is subtracted directly from your bank account. This is true even when you’re using a MasterCard or Visa card that’s debit.
Credit cards offer an extra layer of safety, as it’s not your own money yet
Debit cards encourage better self-control
There’s no interest rate on debit card expenditures, but there may be on credit cards
There are generally more rewards or rebates for credit cards
The forex fees may differ between the two
Transaction alerts can be your best friend
Say the absolute worst-case scenario happens, and someone manages to access your card (note: this may not just be identity theft. Some robbers may force you to go to the ATM and withdraw cash).
If it’s a credit card, you have an extra layer of safety. You can dispute the charges with the bank later, if you get a police report. If all goes well, you may only be liable for a small amount, or even get all the charges cancelled (this depends on the bank in question).
With a debit card, however, the money is taken right out of your account. The bank is not obliged to replace money lost this way, and some travel insurance policies don’t even cover this.
As such, don’t bring the debit card that can draw from your life savings, or that taps into the joint account with your wife. If you want to use a debit card, use one that’s linked to a separate and smaller bank account; not the same one you use to pay your mortgage, save up for a car, etc.
Temptation is high when you’re travelling abroad; and if you have limited financial discipline, having a credit card can make it worse. After all, this allows you to spend up to two to four times your monthly income.
With debit cards, all you have is what’s in that specific bank account. You won’t be able to spend more than you have and get into debt. Psychologically, you’ll also be more cautious in your spending, as it’s money from your pocket.
It comes down to a matter of financial discipline: if you know you lack self-control, then opt for a debit card.
Alternatively, you can change your credit card limits before you travel (e.g. make the credit ceiling $2,000, instead of twice or four times your monthly income). Most banks will comply, if you explain that you are bringing the card overseas; this also limits the amount that can be stolen if you lose the card, so it’s in their interest.
It’s impossible to end up being charged interest on your debit card, since it’s your own money. With credit cards, you do have to pay interest on rollover debt (i.e. any unpaid amount at the end of the billing cycle).
By sticking to your debit card, you can avoid going overboard and accruing interest. But if you’re financially disciplined, this isn’t much of a factor; you can just be sure to pay your credit card on time, and avoid any interest.
There are credit cards specifically designed for overseas use. For example, some air miles cards like the DBS Altitude Card will give you double the bonus miles for spending in a foreign currency, compared to SGD expenditures.
Credit cards also tend to have more in the way of cashback or reward points. Some debit cards may have similar features, but often to a lesser extent (there also tends to be fewer participating merchants).
If you’re interested in maxing out your air miles or savings, you can look for a credit card that is meant for overseas use.
There is a charge for paying in foreign currencies – this is a conversion fee, which is applied on top of the foreign exchange (forex) rate. For most credit cards, the forex fees are between 1.5% to 3% per transaction. Most debit cards also have similar fees, but there are exceptions.
For example, a debit card for a multi-currency account may not include forex fees for each transaction (this depends on the bank you use). This is because the multi-currency account can hold different denominations, and there’s no need to convert. If you have both US dollars and Singapore dollars in the same multi-currency account for example, any spending in US dollars can just be deducted from your US currency, without incurring forex fees.
We get it. The ding-ding from your phone or the long thread of emails for every transaction (either on credit or debit) can get really annoying and spammy. But you’ll never be able to ensure the security measures of that American mall, that Chinese restaurant, or that French hotel. And with scammers getting more sophisticated these days, wouldn’t you rather travel with close oversight of your transactions (as well as those not made by you)?
You can be alerted for transactions as low as $0.01 and the best part is it’s a free service. So why not?
Limit your credit ceiling while overseas (you don’t really need twice your monthly income, surely), and make sure your debit card doesn’t give access to all your money.
Staying safe online should not be taken for granted. Here’s how to Live Cyberstrong with our #BSHARP guide.