Banks provide different types of cards to make financial transactions simple, safe, and convenient. These cards allow customers to withdraw money, make payments, shop online, and manage their accounts without carrying cash. Each type of bank card has its own purpose and features, helping people choose what suits their needs best.
Credit Card
A credit card is a small card made of plastic or metal that is issued by banks to make it easier for consumers to borrow money.
We can use a credit card to buy goods or pay bills for services, or to withdraw money from a bank ATM. For example, we can use a credit card instead of cash to buy petrol at a petrol pump or pay bills at a hospital.
How do I open a credit card account?
Credit card accounts can be opened only in banks. If we go to the bank where we want to open an account and submit an application, we can open an account. Not everyone who applies can open an account. The application is accepted after checking your credit score and financial status.
So what is this VISA, MasterCard, American Express, and RuPay all about?
Visa, MasterCard, and American Express are all networks that connect the machine where the credit card is used and the bank’s server. When we use the card, we have to go to the bank’s server to see if the amount we want is left on the credit card. Visa and MasterCard are the networks that provide this service. For this, they charge a very small percentage fee for every transaction.
What are the things to keep in mind when opening a credit account?
- Credit Limit: The credit limit or maximum amount that can be used is the amount of money that can be purchased using this card.
- Cash Limit: This limit is the amount of cash that can be withdrawn from an ATM using this card.
- Annual Fees: This is how much the card costs per year. Good cards usually don’t have this fee.
- Grace Period: The grace period is the number of days after receiving the bill each month that you have to pay the money without interest. This is a very important point. Only if you pay the money within the grace period can you avoid paying interest. The grace period is usually 15 days or 20 days. That is, if the bill comes on the 30th of every month, if you pay the money before the 15th of the next month, you will not have to pay interest.
- Interest rate: This is the percentage of interest you will have to pay if you don’t pay your credit card bill on time. This is always much higher than the interest rates on other bank loans. For example, one of my credit cards currently has an interest rate of 24 percent. When auto loans have interest rates of around 10 percent, housing loans have interest rates of around 9 percent, and personal loans have interest rates of around 16 percent, the interest rate on a credit card is 24 percent.
- Cash Advance Fee: This is the amount of transaction fees that will be charged if you withdraw cash from an ATM using a credit card.
- Foreign Transaction Fee: This is the amount of additional fee you will have to pay if you purchase goods using the currency of countries outside India.
- Statement Date: This is the day of the month that your credit card bill comes due. If you add the grace period to this date, you get the number of days you have to repay. For example, if a credit card with a statement date of the 10th has a grace period of 15 days, then the bill amount must be repaid in full by the 25th.
How to use a credit card?
When we go to a store that accepts credit cards and buy something, we just have to give our credit card instead of cash. They will then put it in the machine and give us a receipt. Once we sign it, it is the same as if we had paid cash.
If we are buying online, we use our credit card number [which will be 16], the card’s expiration date, and the three-letter security code on the back of the card to make purchases. These three pieces of information are likely to be written on the outside of the card in plain sight. This is why we say that we should never allow anyone to take a photocopy of our credit card under any circumstances. Similarly, we should never give our credit card number and security code to anyone over the phone.
We can withdraw up to its cash limit by inserting our credit card into an ATM. But it is not the same as buying things with a credit card when we withdraw money with a credit card. Interest will start to accrue from the day we withdraw money. Some card companies calculate the total balance on the card as a debt and start adding interest. Similarly, sometimes the interest rate for withdrawing money is higher than when you normally use a credit card. Therefore, withdrawing money from a credit card should only be done if it is very, very necessary. If there is any need, you should try to take a loan from the bank. Once you withdraw money from the card, it does not take long for it to grow.
What should you pay attention to when you receive a credit card bill?
- Payment Due Date: If the full amount stated on the bill is not paid within this date, interest will begin to accrue.
- Last month’s bill amount or Total Amount: This is the amount of money you used your credit card for last month. This amount will not accrue interest unless you pay it within the specified date on the bill.
- Minimum Payment: The minimum payment is the minimum amount that must be paid to avoid penalty. In regular credit card accounts, if the minimum payment is not paid, there will be a penalty and the interest rate we were initially given will change. If the minimum payment is not paid, the bank can also charge a higher interest rate as a penalty. What is important to note is that interest will not be calculated just by paying the minimum payment. Only by paying the full amount can you avoid interest. Similarly, if you do not pay the full amount, you will have to pay interest on all the items you buy after that. That is, if you do not pay the first month’s bill, you will have to pay interest on all the items you buy in the second and third months from the day you buy them.
What are the advantages of using credit cards?
The biggest use of a credit card is that we can buy the things we need right now, even if we don’t have the money. Some cards offer an extended warranty on items purchased with them. One of the cards I have offers a two-year extended warranty on electronic items purchased with it. Some credit cards also offer rental car insurance.
Similarly, a credit card can be seen as an emergency fund to buy things in case of an emergency and to pay bills at the hospital. Some cards also offer cash back offers. That is, if there is a percentage cash back, if you buy something for Rs. 1000 using a credit card, the bank will give you Rs. 10 back.
What are the disadvantages of credit cards?
Because of the ease of use and the fact that we are allowed to spend money that we do not have, it is very easy to use credit cards to buy unnecessary things and get into debt. If you do not have financial discipline, it is better not to use credit cards. The interest rates on credit cards are very high. Similarly, the fees charged as penalties are very high.
Credit card debt is the debt that should be paid off first. Do not extend credit card debt under any circumstances.
Credit cards can bring many benefits if used carefully, but can also cause many more harm if not used carefully.
Debit Card
A debit card is a plastic or metal card issued by a bank to use the money in a bank account without carrying it in cash. Only those who have an account with the bank can get a debit card. Only the amount in our account can be withdrawn using a debit card. If you have Rs 1000 in your account, you can only buy goods worth Rs 1000 using a debit card. This is the difference between a credit card and a debit card. The method of using a debit card and other security features are the same as a credit card.
Debit cards, like credit cards, use a network such as VISA, MasterCard, or RuPay. You can also withdraw money from bank ATMs using a debit card. There is a limit on how many times you can use an ATM in a month. If you exceed this, you will be fined. Information about this is available from the bank.
The advantage of using a debit card is that you don’t have to carry cash with you. You don’t usually get cash back offers or extended warranties like credit cards do.
Prepaid Card
A prepaid card is a card that is not linked to a bank account but can be used like a debit card. A prepaid card means a card that has been paid for in advance. As the name suggests, a prepaid card is a card that is purchased by paying money in advance.
For example, if we want a prepaid card of Rs. 10,000, we have to go to the bank and pay Rs. 10,000 to buy the card. There will be a small fee for buying the card for the first time. If you have a prepaid card in your hand, you just need to load it with rupees.
No credit history or loan application is required to purchase a prepaid card.
Benefits of a prepaid card:
- Don’t carry cash around. Instead, keep a small card in your wallet. This will come in very handy when traveling long distances.
- A prepaid card is the easiest way to shop online for people who don’t have a credit or debit card.
Disadvantages of prepaid cards:
- The bank will charge a fee for putting money on the card.
- If you lose your card, you risk losing your money. Prepaid cards don’t offer the same level of protection as credit cards.
Gift Card
A gift card is a prepaid card sold by a merchant instead of a bank.
A gift card from an organization can only be used to purchase goods from that organization. For example, if you buy an Amazon gift card, you can only use it on Amazon, and if you buy a Flipkart gift card, you can only use it on Flipkart. Restaurants and clothing stores now sell gift cards.
One thing to note is that most gift cards have an expiration date. For example, if you buy a card with a two-year expiration date today, you must use it within two years. Otherwise, that money will be wasted. You will never get it back.
It’s generally not a good idea to buy a gift card unless you’re giving it to someone. A prepaid card is a better gift than a gift card.
Travel Card
A travel card or Forex card is intended for use when traveling to foreign countries. A travel card works like a prepaid card. When we go to the bank and pay Indian rupees to buy a travel card, we add money to the card in foreign currency. The bank will charge the applicable fees and commissions for this. For example, when we go on a trip to the United States, we load money on the travel card in American dollars.
Once you arrive abroad, you can use the travel card to pay bills in stores and withdraw money from ATMs.
There are limits on the amount of currency notes you can take abroad, so a travel card is a good option if you want to carry more money. It’s also easy to keep.
If there is any remaining balance on the card when you return, you can pay it to the bank and get it back in Indian rupees. The procedure for this should be asked and understood when purchasing the travel card.
Bank cards have become an essential part of modern banking because they offer quick, secure, and hassle-free financial transactions. With different types of cards serving different purposes, customers can choose the one that matches their spending habits and lifestyle. Overall, bank cards make managing money easier and more convenient in everyday life.
