Eli5 can someone explain debit and credit cards and why and when to use one or the other
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A lot of people have already covered that from a consumer perspective the main difference between the two is essentially when you actually pay for the transaction so I’ll address the difference between the issuers (banks) of the cards.
A credit card issuer like Wells Fargo, capital one, or American Express earn revenue in a few main ways. One is fees, like annual fees to have access to the card, late payment fees, etc. Two is interest which gets charged on any unpaid balance at the end of a billing cycle. Three is issuer revenue which is best explained through an example. Say you buy 100 dollars of stuff at Walmart with your credit card. Soon after your transaction, whichever bank issued the card will send funds to Walmart for the transaction, but not the full amount, it would be something like 98. You will then pay the bank the full 100 dollars on the next payment due date. The 2 dollar difference is the issuer revenue. The banks will then have expenses for the card member rewards they offer to get people to keep and spend more on the card.
On debit cards, banks will also earn money off of fees like overdraft fees. There is no unpaid balance so they won’t earn interest that way, but they can earn interest by lending out your money for other loan products like mortgages or credit card loans. They typically earn very little if any issuer revenue and have very few if any expenses for rewards and benefits.
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