What kinds of bank cards are there?
Content
- 5 different types of bank cards
- Which type of bank card is good for me?
- Summing up
- Bank Cards: Answers To Your Frequently Asked Questions
We answer all these questions and more below.
5 different types of bank cards
Bank cards (also called payment cards, ATM cards, or cash cards) feature a suite of common, instantly recognizable traits:
- Standard dimensions (85.60 mm × 53.98 mm)
- The card number (16 digits) and expiration date are displayed on the card
- Issuer logo displayed on card (Visa, Mastercard, American Express, etc)
However, several types of bank cards are available and are different from one another when it comes to how, when, and where they can be used.
This article focuses on the most common types of cards: credit, debit, prepaid, virtual, and gift cards, as well as the pros and cons of each.
Credit cards
A credit card is issued by a bank and, suggestively, acts as a line of credit (or loan) from the bank to you. With this card, you are only able to make payments up to a set monthly credit limit.
Credit cards themselves come in a variety of categories, including:
- Rewards credit cards
- Balance transfer credit cards
- Secured credit cards
- Cash-back credit cards
- Travel credit cards
- Zero percent APR credit cards
- Business credit cards
- Student credit cards
- Store credit cards
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So how does a credit card work?
With a credit card, you don’t need to have funds in your bank account to make purchases. Every time you pay, the amount you spend will be deducted until you’ve reached your credit limit. The amount then has to be paid back to the bank, usually in installments and with an interest. What can you do with a credit card? This may depend on your specific type of credit card, but usually, you can make purchases online and in stores, pay bills, and even withdraw cash from an ATM.
Credit cards are co-branded by the issuing bank and one of the card networks, like Visa or Mastercard.
Credit cards pros:
- Help with your credit history;
- Offer better protection against fraud;
- Cardholder’s liability is limited in case of a stolen card or card data;
- Points and discounts when shopping.
Credit cards cons:
- Possibility to accumulate debt and hence a negative impact on your credit scoring;
- High fees for certain operations such as ATM withdrawals;
- You pay interest on the credit.
Debit cards
A debit card is linked to your current bank account or checking account. Unlike a credit card, a debit card enables you to pay by deducting money from the associated account. This means you can only spend or withdraw funds that you already own. What can you do with a debit card? You can use a debit card to make purchases online and in stores, pay bills, and withdraw and deposit cash to your bank account at an ATM.
Debit cards are co-branded by the issuing bank and one of the card networks, like Visa or Mastercard.
Debit cards pros:
- Low or no fees for ATM withdrawals;
- No interest is paid on what you spend;
- Prevent debt.
Debit cards cons:
- Limited funds available and the possibility of overdraft when the account balance reaches zero;
- Lower fraud protection compared to credit cards;
- Don’t help build your credit score.
Prepaid cards
Like debit cards, prepaid cards are issued by a financial institution (Visa, for instance) and hold a deposit of funds that you can use to make purchases or payments.
The main difference between a prepaid and a debit card is that once the funds deposited on a prepaid card have been spent, the card can no longer be used until more money is added. With a debit card, the bank can allow you to continue to spend when your bank account balance reaches zero (against a fee and interest).
Prepaid cards have a card number and an expiration date just like debit or credit cards, but are not linked to a bank account. A prepaid card can be reloaded and used until it expires.
What can you do with a prepaid card?
A prepaid card can be used like a credit or debit card, to make purchases online or in-store (where accepted), to pay bills, and to withdraw and add cash.
Prepaid card pros:
- No possibility of overspending or debt;
- No need to open a bank account;
- Can be recharged and reused.
Prepaid card cons:
- Fees for almost any operation (activation, reloading, purchases, withdrawals, etc);
- Might not be accepted by certain merchants.
Virtual cards
Virtual cards are non-physical payment instruments replacing physical cards and cash. A virtual card is the same as a credit or a debit card but only exists as a set of data including the 16-digit card number, expiration date, and a CVV code.
You can get a virtual card from almost any card issuer (from traditional banks to neo-banks and some money transfer services).
Some virtual cards are reusable, but some issuers offer disposable ones, which can only be used once
What can you do with a virtual card?
A virtual card can be stored on a device like a phone or a smartwatch and you can use it for contactless payments in stores or online. You can not withdraw cash using a virtual card.
Virtual cards pros:
- Enhanced security as they hide your real card or account number;
- Can be added to a digital wallet (Apple Pay or Google Pay) so you can go wallet-free;
- Ready to use as soon as issued;
- Usually fee-free.
Virtual cards cons:
- Can only be used in stores via a digital wallet;
- They are temporary so not a good option for recurring payments or direct debit.
Gift cards
Similar to prepaid cards, gift cards are also pre-loaded with funds. What makes a gift card different is that once the money is spent, you cannot reload a gift card and can no longer use it. Gift cards also have shorter expiration dates than prepaid cards.
Gift cards were initially issued by a store and could only be used in that particular location (known as closed-loop gift cards).
Presently, however, major card issuers like American Express, Visa, or Discover are also offering gift cards that can be used anywhere. These are known as open-loop gift cards.
What can you do with a gift card?
You can use a gift card to make purchases at retail stores, gas stations, restaurants, and other locations.
Gift cards pros:
- Controlled spending;
- Secure as they typically hold small amounts of cash and cannot be reused;
- Don’t require a bank account.
Gift cards cons:
- Limited use range;
- Issuing fee;
- Use can be subject to conditions and fees depending on merchants.
Which type of bank card is good for me?
Knowing which card type to choose for yourself or a family member can be difficult to navigate. To make it easier, here is how the different types of cards compare:
| Features | Credit card | Debit card | Prepaid card | Virtual card | Gift card |
|---|---|---|---|---|---|
| Physical card | yes | yes | yes | no | yes |
| Requires a bank account | yes | yes | no | no | no |
| ATM withdrawals and deposits | yes | yes | yes | no | no |
| Online payments | yes | yes | yes | yes | yes |
| POS payments | yes | yes | yes | sometimes | yes |
| Monthly/yearly fees | yes | yes | yes | no | no |
| Security/fraud & liability protection | yes | yes | limited | limited | no |
| Impacts your credit score | yes | no | no | no | no |
| Money transfers abroad | yes | yes | yes | yes | yes |
Consumers today can choose from a variety of bank cards including credit cards, debit cards, virtual cards, prepaid cards, and gift cards.
Understanding the most important features, benefits, and limitations of each type of card is essential for choosing the right one:
Credit cards: you can defer payments up to a certain credit limit but will pay interest;
Debit cards: spend money from your checking account;
Prepaid cards: a type of debit card with a fixed amount of funds; reloadable until the card expires;
Virtual cards: a digital version of your debit or credit card for enhanced security when shopping online;
Gift cards: a version of prepaid cards which cannot be reused once the funds run out.
In addition to online and in-store payments and ATM usage, you can also use any type of payment card to send money internationally.
Bank Cards: Answers To Your Frequently Asked Questions
What are the different types of bank cards?
Several types of bank cards are available. The most popular and generally accepted are credit cards, debit cards, prepaid cards, gift cards, and virtual cards.
Bank cards differ in cost, usage, acceptance, and security. The two main categories are credit (the cardholder borrows money from the bank) and debit cards (the cardholder owns the funds they spend).
Bank cards are typically issued by a bank and a card network like Mastercard, Visa, or American Express.
When were bank cards invented?
Bank cards go back to the 1970s. The first bank cards were issued in 1967 in the UK for use at ATMs. In 1972, Lloyds Bank issued the first card with a personal identification number (PIN) for better security along the magnetic strip.
As the use of POS terminals increased in the 1980s, debit cards started being issued in 1987 by Barclays and other banks.
What type of credit card is a debit card?
A debit and credit card look similar but work very differently. A debit card enables the cardholder to use funds available in their associated checking account. A credit card, on the other hand, is a loan from the bank to the cardholder.
Both debit and credit cards are accepted for payments at point of sale (POS) terminals, online, and can be used for ATM cash withdrawals.
Are Visa gift cards accepted everywhere?
The Visa Gift Card can be used everywhere Visa cards are accepted. This includes merchants, restaurants, and even when shopping online. Visa Gift Cards are used just like regular credit or debit cards. Each time you make a purchase, that amount is automatically deducted from your card balance. Once the balance is used up, the card cannot be reloaded for future use.