4.3.3 Compare credit cards to debit cards

From: Financial Consumer Agency of Canada

Credit cards and debit cards both allow you to pay for purchases without using cash. But they work differently:

  • With a debit card, you transfer money immediately from your banking account to the seller's account. You can’t spend more than you have in your account (unless you have overdraft protection). For this reason, some people prefer to use debit cards as a way to limit their own spending. This can work, as long as your debit card is not linked to a line of credit, which would allow you to continue withdrawing funds until you had reached the limit of the line of credit. Transactions with debit cards have fees, unless your banking account agreement includes a number of free transactions.
  • With a credit card, you borrow money from the credit card issuer to pay the vendor. You can continue to use your credit card to make purchases until you reach your credit limit. You have to pay back what you've borrowed by the due date to avoid or minimize interest charges. Credit cards often have annual fees. For individual transactions, there are no fees for using the card for purchases made in Canada. There are fees for using the card for cash advances or making purchases for foreign currency transactions. These fees may vary for different credit cards.
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