Monday, February 2, 2009

Types of debit card

Although many debit cards are of the Visa or MasterCard brand, there are many other types of debit card, each accepted only within a particular country or region, for example Switch (now: Maestro) and Solo in the United Kingdom, Interac in Canada, Carte Bleue in France, Laser in Ireland, "EC electronic cash" (formerly Eurocheque) in Germany and EFTPOS cards in Australia and New Zealand. The need for cross-border compatibility and the advent of the euro recently led to many of these card networks (such as Switzerland's "EC direkt", Austria's "Bankomatkasse" and Switch in the United Kingdom) being re-branded with the internationally recognised Maestro logo, which is part of the MasterCard brand. Some debit cards are dual branded with the logo of the (former) national card as well as Maestro (e.g. EC cards in Germany, Laser cards in Ireland, Switch and Solo in the UK, Pinpas cards in the Netherlands, Bancontact cards in Belgium, etc.). The use of a debit card system allows operators to package their product more effectively while monitoring customer spending. An example of one of these systems is ECS by Embed International. A prepaid debit card looks a lot like a credit card. It even works a lot like a credit card, when you use it in a store to purchase products. However, a prepaid credit card is not a credit card. The two work very differently.

Whenever you use a credit card, you are borrowing money from someone else to purchase something. A credit card is then, in essence, a loan. It doesn’t matter if it is a secure credit card, a small business credit card or anything else: the credit card company is lending you money in order to make your purchase, for which you are going to be charged interest on later (assuming you don’t pay the total balance within a predetermined period).

A prepaid debit card, on the other hand, is not a loan. It is simply a method following some of the principles of credit cards for the basic transaction, but instead of borrowing money from a third party you are taking money straight from your debit card account. This is why it is referred to as prepaid: you put the money into the account, then you can take the money out of it using your debit card, as opposed to paying for the purchase after the fact with a credit card.

Because of this there are no interest rates applied to prepaid debit cards, although there are sometimes fees associated with them. You never have to worry about going into debt using a prepaid debit card, since you are only taking out what you have put in. Many people find them a welcome alternative to traditional credit cards. Traditional debit cards, however, are not prepaid but simply linked to a bank account. This means it is sometimes possible to go overdrawn (effectively a loan), and incur interest charges and/or fees. However, if the bank account has sufficient funds to cover the transaction amount, no fees or charges will generally be applied. .

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