Debit Card

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More readily issued than credit cards and popular among neobanks, debit cards are an important spending innovation with financial security for users and more control over spending habits. 

In this wiki entry, readers will learn all about debit cards: what they are, how they relate to EC and Girocards, what some of the benefits are, and what limitations they have

Debit cards in a nutshell

  • A debit card is a cash substitute which is widely applicable with merchants across the globe, online and in person
  • EC and Girocards are Germany-specific debit cards, and are more widely accepted at merchants in the country than other debit cards
  • Debit cards contain no service charges or hidden fees
  • Debit cards usually have excellent fraud protection
  • Rewards debit cards allow cardholders the opportunity to reap rewards usually reserved for credit cards
  • Payments with debit cards are cheaper for merchants, making them more likely to be accepted than a credit card
  • An important limitation with debit cards is that they do not contribute to cardholders credit rating or assist with making large down payments

What is a debit card?

Also known as a bank card or check card, debit cards are plastic cards which can be used instead of cash to make purchases. While both card types enable the cardholder to make cash-free purchases, debit cards differ from credit cards because the money being spent with each purchase comes from the funds in the cardholder’s bank account, instead of an issued line of credit. 

EC and Girocards

Often used synonymously, EC and Girocards are the most popular types of debit cards in Germany. They enable cardholders to withdraw cash in Germany at ATMs, or to make payments to merchants. Often, merchants such as restaurants will accept payment with EC or Girocards but not debit cards issued by Mastercard or Visa. 

Benefits of a debit card

Credit cards allow their users to make bigger purchases on payment plans, which gives them a clear advantage over debit cards which only extract from users’ accounts. However, there are significant benefits that come with using debit cards.

No service charges or hidden fees

Aside from some banks charging transaction fees to ATMs owned by different banks, a debit card will not incur fees or interest on repayments for the user. Transaction fees can be avoided by planning ahead and checking the ATMs in the area where the user is going to make their purchases. 

No fees or interest on spending means the user will always have a clear picture of how much they are spending. They can separate spending and savings accounts, making sure only to withdraw a certain amount each month for spending. Debit cards give the user more control.

Security and fraud protection

Debit card security, especially from the major card issuers, is particularly advanced. In addition to your four-digit PIN, online purchases are also protected by the security card, two-factor authentication, and notifications if your card is being used from another device. Your bank will also contact you if there has been unusual spending habits on your debit card. 

Rewards debit cards

Previously a privilege restricted to credit cards, there are now options for rewards collection when spending with debit cards. Certain cards have a points system in place which allows users to collect points with each purchase, which they can later spend on gift cards, travel, or more shopping. 

Lower cost for merchants

The reason many merchants may display the sign indicating they do not take credit cards is because it is more expensive for merchants to accept credit card payments. Debit cards on the other hand are cheaper, lending to their broader accessibility. This perk also compliments the rewards system, because cardholders will be able to collect rewards from more merchants. 

Debit card vs credit card

Some of the advantages and disadvantages between the two cards have been outlined in this article already: 

  • Inability to make purchases larger than the current bank account affords
  • Less likely to have a rewards system
  • Inflexible payment options

However the most important limitation is that debit cards cannot assist users with building creditworthiness or making down payments on larger purchases. With credit cards, a cardholder is able to build a financial reputation through early or on-time repayments. This enables them to present their clean record to an accountant when considering a larger purchase, or to develop a stronger SCHUFA.

This is not possible with a debit card. Cardholders have control over their spending but they do not have the opportunity to build a credit rating to assist with future financial decisions. This is why the decision to choose between the two is an important one. 

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