Is a credit card the same as an ATM card? Know the key differences
Credit and ATM cards are similar in appearance but differ significantly in function and financial impact. Credit cards allow borrowing up to a limit, potentially incurring interest, while ATM cards access personal funds directly, incurring no interest but relying on PIN security.
Credit cards and ATM cards are very similar in appearance since they are both plastic cards that can be used to make financial transactions. They are, however, worlds apart in terms of function, objective, and impact on financial security. Here we will help in better understanding their special qualities and how to use them effectively to optimize advantages and reduce dangers.
Credit cards
Banks as well as financial institutions provide you credit cards which basically is a medium for financial leverage; with them you are eligible to spend borrowed amounts at whatever amount, repay the debt any time because that serves you revolving credit.
1) How it operates
- You borrow your money and shop on your way by means of credit cards, so they just happen to combine all aspects discussed.
- To avoid paying interest, the borrowed amount has to be paid back within the grace period.
2) Benefits
- Instant money access for purchases made in-store or online.
- Frequent usage is promoted through rewards such as loyalty points, discounts, or cash.
- Chance to build your credit score through responsible usage.
ATM cards
Often called a debit card, an ATM card is actually connected directly to your savings account. It lets you access the money in your own accounts to make purchases, withdraw cash, and conduct other everyday banking transactions.
1) How it operates
- Your bank account is connected to your ATM card.
- Transactions immediately take money out of your account.
2) Benefits
- Transactions are limited only to your account balance, so you always know how much you are spending.
- Promotes financial management and living according to your means.
- Other cards have rewards in points for specific kinds of transactions.
Key differences between credit card and ATM card
Aspects | Credit card | ATM card |
|---|---|---|
Source of funds | Based on your credit limit, make use of a line of credit that the provider has issued. | Use the money that is available and is directly connected to your bank account. |
Interest charges | If unpaid amounts are not settled within the grace period, interest will be charged. | Since it uses your own funds, there are no interest fees. |
Credit score | Based on usage, it can be positive or negative for your credit score. | Has no influence on your credit report. |
Spending limit | Spending Limit tied by the credit limit that has been pre-approved. | Limited to the amount that is currently in your bank account. |
Fees | Comprise interest on outstanding accounts, annual fees, and late payment penalties. | Based on usage, moderate ATM withdrawal fees might be added. |
Fraud protection | Zero liability for unauthorized transactions and high protection. | Restricted security, highly relying on PIN protection. |
In conclusion, despite being plastic cards used for financial transactions, credit cards and ATM cards operate very differently. Credit cards have disadvantages even if they provide benefits, rewards, and the opportunity to establish credit. If payments are not properly managed, high interest rates on outstanding amounts might result in substantial debt. Financial hardship can also result from excessive expenditure brought on by the ease of obtaining credit.
(Note: Using a credit card carries its own set of risks.)
Catch all the Instant Personal Loan, Business Loan, Business News, Money news, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.