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Reshma Krishnan

CREDIT cards are addictive. You think you can control the urge to use them but they are too convenient. And before you know what, you have yielded to the temptation. Then you get a bill that is almost half your month's salary. Too late to repent your own excuse: "It is so much easier than carrying cash". There is now a way out of your guilt trips, or making up excuses: Yet another card, but on the other side. Welcome to the world of debit cards.

Debit cards have been around for quite a while but were not very popular and were offered by few, and accepted at fewer still establishments. But now you can use them practically anywhere you use your credit card; they also double as ATM cards.

A debit card has direct access to your bank account. Whenever you use it, your bank account is debited, immediately. Unlike credit cards, you do not get any credit period; so there is no hassle of minimum income for getting one.

So how does it work? Simple: Your purchase limit is equivalent to the balance in your account. Therefore, you control how much you spend; the bank merely tells your balance.

When the card is presented at an establishment, it is "swiped" on the EDC terminal (these are electronic machines that access your account status and get sanction for the transaction). After approval, the EDC terminal generates a charge slip that you sign. With this, your transaction is complete and the amount is debited immediately from your bank account. This is the direct debit card that is most commonly used.

A deferred debit card, on the other hand, is similar to a credit card. But unlike a credit card that facilitates online transaction, this allows `off-line' transactions as well. That is, when the EDC terminal reads your card and creates a charge against your account, it does not debit your account immediately. The transaction is stored for processing two-three days later. Instead of using a Personal Identification Number (PIN), you sign a receipt. Off-line transactions are verified immediately to see if there is money in the account. There are, however, not many deferred debit cards around as the very purpose is defeated.

Benefits: The main benefit of using a debit card is not having to make payments. In the case of credit cards, delayed payments are penalised with hefty interest rates, of up to 30 per cent per annum. Also, a debit card is cheaper than a credit card. Costs are specific to the bank where you hold the account. While Standard Chartered charges Rs 100 per annum for its debit card, Citibank and HDFC offer it free. Citibank levies no transaction fee either.

Getting a debit card is easy — If you qualify to open an account, you are eligible for a debit card too. Most accounts come with a debit card; for instance, the Citibank Suvidha account comes with a Citicard.

Since a debit card can also be used to access ATMs, you do not need an extra card. However, you will be charged for using at ATMs other than your bank's.

HDFC charges Rs 55 for any transaction other than its own. Standard Chartered offers an incentive by which you can make four free transactions a month from any ATM, after which you are charged.

Debit cards come with lost card insurance, purchase protection and personal accident cover. Many banks nowadays insist on including your photograph — a good security upgrade considering that merchant establishments rarely check the signature.

These cards are international and some can be access ATMs across the world. So, international travellers can say goodbye to the annoying travellers' cheques.

Now, a look at some fineprint. Do not be taken in by the "whenever, wherever" claim. Debit cards can be used only at places with the VISA electron sign — which means about 25,000 establishments in India. In Citibank's case, 12,000 establishments, mainly centred in Bangalore, Mumbai and Delhi.

The good news is that more and more places are finding the debit card reliable, as your eligibility is determined by your bank account. This is not strictly true for irrespective of the account Standard Chartered, for instance, allows transactions only up to Rs 25,000 a day.

The debit card charges are part of the account. It is very important for you to go through the chargesheet thoroughly to know when you will be paying for something, unless you do not mind a nasty surprise.

You are charged for cash withdrawals and bank statements, if your bank balance falls below the stipulated minimum. Most of these accounts come with reward schemes and discounts.

Citibank has a rewards scheme with points as that for credit cards. Standard Chartered has a `travel cash back' scheme.

Standard Chartered Grindlays, together with the travel house, IND Travels, saves you some money when you buy tickets using your debit card.

However, many discounts are targeted at customers in Mumbai or Delhi. Therefore, for others, the debit card remains just that.

Functional and handy, and less threatening to your financial profile, a debit card is, overall, a useful option.

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