Debit cards have their advantages. They don’t go into debt. They help you avoid carrying large wads of cash. And they can work well on a strict budget, because you can’t spend more than what’s in your checking account.
As advantageous as a debit card may seem, it has significant shortcomings, especially when compared to a cash back credit card. As much as you love your debit card, here are five big reasons why you should replace it with a cash back credit card.
1. You will earn money
Alright, let’s get rid of the most obvious reason: With a cash back credit card, you earn, well, cash back.
Now, to be fair, you can also earn money on certain debit cards. But a cash back debit card will rarely earn more than its credit card counterpart. The more you could be able recover 2%. More than likely you will get 1% or less.
Many of the best cash back credit cards in Canada will give you 1% to 2% back on your everyday purchases, as well as bonus rates for certain spending categories. For example, your cash back credit card could give you 5% back on your grocery purchases. It could also give you more for gas, restaurants, utilities, or even entertainment. Some cards even have rotating bonus categories, allowing you to earn more money for certain purchases made during a specific quarter.
As long as you don’t have a balance on your card, this income can bolster your budget. At the very least, they could help you keep pace with current inflation rates in Canada.
2. You can build your credit
A credit card is one of the best ways to establish a credit rating. As long as you pay back what you borrow, without going over your card’s credit limits or missing payments, your credit score will steadily improve over time.
Even if you damaged your credit score in the past, a credit card could help you rebuild it. For example, you can get a secured credit card, which requires a security deposit in advance to use the card. As you build your credit with a secured credit card, you also build a relationship with your credit card provider. At some point they might offer you a not guaranteed credit card, such as a cash back credit card.
A debit card does not create credit, nor rebuild credit. Your bank won’t report your buying activity to credit reporting agencies, nor will it consider your oldest debit card when you apply for a mortgage.
3. You get fraud protection
Credit cards come with extensive fraud protection. Even if a thief stole your credit cards and maxed them out, you wouldn’t be responsible for paying any unauthorized charges. Just call your credit card provider, let them know what happened, and poof – your card will be cancelled.
At most, you could pay $50 for an unauthorized charge to your credit card, a maximum set by the government. Even then, paying $50 is rare.
A debit card can also offer fraud protection, but it’s usually not as extensive. Also, the process of getting your money back can be long and exhausting. Since your debit card is linked to your bank, if a fraudster got hold of your card (and your PIN), they could drain your account. This could leave you without cash for a long time, in which case it might be a good idea to have a credit card handy.
This is one of my favorite things about cashback cards – they usually come with loads of free insurance.
For example, your card may have purchase insurance, such as price protection, extended warranties, and purchase protection. On top of that, you could even buy mobile device insurance, which will reimburse the cost of your phone if it’s misplaced or damaged.
Travel insurance is also a popular benefit. Many cards come with rental car coverage, as well as lost or stolen baggage insurance. You could qualify for trip interruption, trip cancellation, or even emergency medical coverage.
Again, these are all free. As long as you use the cash back card to make purchases, you activate the insurance. No debit card could even dream of offering the level of coverage built into the best credit cards in Canada.
5. You can land a welcome bonus
Finally, you can get a big welcome bonus on many of the best cash back credit cards in Canada. These days, you can easily get a bonus of $200 to $300 just for opening a new account and hitting a spending threshold within a specific time frame. Some cards will even offer Following than that, especially if the card comes with an annual fee.
Now the banks To do offer welcome bonuses on bank accounts, which often have a debit card attached. But these offers aren’t as common as welcome bonuses on cashback cards, and they’re usually not as high.