Personal finance champion Martin Lewis has issued a stark warning to UK shoppers, revealing that the humble debit card can be a more costly and risky way to pay compared to its credit counterpart.
The Hidden Cost of Debit Card Overdrafts
In a detailed analysis, the MoneySavingExpert founder highlighted the significant financial pitfall of dipping into an overdraft. Debit card overdrafts typically carry a hefty 40 per cent annual interest rate. This figure is substantially higher than the average 25 per cent APR charged on many high street credit cards, making an unauthorised overdraft a very expensive form of borrowing.
Superior Protection with Credit Cards
Beyond interest rates, Mr Lewis pointed to a critical legal safeguard that debit card users miss out on. Credit cards offer Section 75 protection under the Consumer Credit Act. This powerful UK law makes the card provider jointly liable with the retailer for purchases costing between £100 and £30,000. If an item is faulty, not delivered, or the company goes bust, your credit card company must help you get your money back.
This level of protection is simply not available with a debit card, leaving consumers more vulnerable if a transaction goes wrong.
Rewards and Responsible Spending
Furthermore, credit cards can actively pay you to spend. Many providers offer attractive reward schemes, including cashback. Some cards offer introductory cashback as high as 5 per cent, settling to around 1 per cent regularly. This provides a tangible financial benefit that debit cards do not.
Mr Lewis was careful to add a crucial caveat: this advice is primarily for those who manage their money diligently. He advised that for people who pay off their balance in full every month and select the right card, a credit card can often be a more beneficial way to spend. It becomes a tool for gaining protection and rewards, not for building debt.
The key takeaway is to rethink automatic debit card use. For significant purchases and day-to-day spending, a responsibly-managed credit card could offer better financial security and value.
