Ethan Clarke
Plastic money is a broad term for various payment cards used in place of cash, including credit cards, debit cards, prepaid cards, and other electronic payment cards. The term 'plastic money' refers to the material of these cards, which are typically made of plastic with metal components. Credit cards allow users to borrow money from card-issuing banks up to a pre-defined limit and offer benefits like travel insurance and purchase protection. Debit cards are directly linked to your bank account and allow you to withdraw money or make purchases, with funds instantly debited from your account. Prepaid cards are loaded with a specific amount of money, helping users stick to a budget. These forms of payment offer convenience, security, and easy record-keeping, but users should also be aware of potential drawbacks like overspending and hidden charges.
| Characteristics | Values |
|---|---|
| Definition | Payment methods executed through cards made of plastic with metal components |
| Types | Credit cards, debit cards, prepaid cards, forex cards, ATM-cum-debit cards |
| Benefits | Reward points, cashback incentives, discounts on purchases, travel benefits, fraud protection, budgeting tools, financial inclusion |
| Drawbacks | Temptation to overspend, stealth fees (foreign transaction fees, cash advances, ATM withdrawal charges), interest and penalties on purchases |
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What You'll Learn
Credit Cards
When using a credit card, it is important to manage spending and repay the borrowed amount by the applicable due date to avoid interest charges and fees. Credit cards charge interest on the outstanding balance, expressed as Annual Percentage Rates (APR), which can vary depending on the card issuer and market conditions. Failure to make timely payments can result in significant debt and negatively impact an individual's finances and credit standing.
There are different types of credit cards, including business credit cards and store credit cards. Business credit cards are designed for businesses and often include features like financial tracking and business-oriented rewards programs. Store credit cards, on the other hand, are issued by specific stores or retailers and offer rewards when used at the issuing store but may come with higher interest rates or fees.
To obtain a credit card, individuals need to fill out an application form with personal and financial information. The credit card issuer will evaluate the applicant's credit score and report to determine eligibility and set the interest rate. Responsible use of credit cards involves maintaining a low balance, paying off debt promptly, and prioritising purchases within one's financial means.
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Debit Cards
A debit card is a type of plastic money that is directly linked to your bank account. It is a payment card that can be used in place of cash to make purchases or withdraw money from your linked bank account. The money for the purchase is immediately deducted from the cardholder's bank account and transferred to the merchant's account.
One of the main advantages of debit cards is that they reduce the risks associated with carrying cash. If a debit card is lost or stolen, it can be easily reported and blocked, preventing unauthorised access to funds. Additionally, card issuers employ advanced security features like PINs, EMV chips, and two-factor authentication to safeguard transactions.
Another benefit of debit cards is that they provide easy access to funds, especially during emergencies. They have high daily transaction limits and do not rely on banking hours for withdrawals. They also offer convenience by eliminating the need to carry large amounts of cash and reducing the time spent on traditional payment methods.
Furthermore, debit cards have contributed to financial inclusion, especially in countries like India, by providing access to transactions and funds even in remote areas with limited banking infrastructure. They have also played a role in the economic growth of these countries by promoting transparency, reducing unrecorded cash transactions, improving tax compliance, and increasing government revenue.
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Forex Cards
One of the primary advantages of Forex Cards is the protection they offer against currency rate fluctuations. The forex rate is locked in as of the day of purchase, ensuring that travellers are not affected by exchange rate variations during their trip. This feature also allows for simple and convenient budgeting, as individuals can load their cards with a set amount and avoid unexpected expenses due to currency rate changes.
The cost of a Forex Card can vary, typically ranging from zero to around ₹500, depending on the issuing bank or service provider. The amount that can be loaded onto the card also differs, with the RBI generally permitting up to USD 3,000 or its equivalent in other currencies. Forex Cards usually have validity periods of up to 5 years and can be reloaded when the funds run out.
In addition to their convenience and cost-effectiveness, Forex Cards offer security and peace of mind while travelling. If lost or stolen, the cards can be easily reported and blocked, preventing unauthorised access to funds. Card issuers also employ advanced security features like PINs, EMV chips, and two-factor authentication to safeguard transactions.
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Prepaid Cards
Some prepaid cards may be retailer-specific and can be used for purchases at specific stores or chains. These often come with special discounts, promotions, and reward points for loyal customers.
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Contactless Cards
One of the main benefits of contactless cards is the convenience and speed they offer. Contactless payments are typically faster than traditional cash, credit, or debit card purchases, and they eliminate the need to carry large amounts of cash. Additionally, during the coronavirus pandemic, tapping a card to pay helped to avoid touching payment terminals, addressing health and safety concerns.
If your card is not already contactless, you can call your card issuer to see if they offer contactless cards and request a new one. Major financial institutions and multinational corporations now offer contactless payment systems to customers as contactless credit cards have become widespread in many countries, including the US, UK, Japan, Germany, Canada, Australia, France, and the Netherlands.
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Frequently asked questions
Plastic money refers to various forms of payment cards used instead of cash to carry out transactions. Here are some of the most common types:
- Credit cards
- Debit cards
- Prepaid cards
- Forex cards
- Digital wallets
- Contactless cards
Plastic money offers several benefits, including:
- Enhanced security features such as PIN protection, chip technology, and fraud detection systems.
- Convenience: there is no need to carry large amounts of cash, and transactions can be conducted swiftly and easily.
- Record-keeping: electronic records of transactions can be accessed online, simplifying tracking and budgeting.
- Global acceptance: plastic money is widely accepted worldwide, facilitating international travel and online shopping.
- Emergency access to funds: daily transaction limits on these cards can be significant, providing access to money in emergencies.
While plastic money offers many advantages, there are also some potential risks and drawbacks to be aware of:
- Temptation to overspend: the ease of purchasing without using physical cash may lead to financial stress if balances are not repaid.
- Hidden charges: some cards may have high penalty fees for late or missed payments, foreign transaction fees, cash advance fees, and ATM withdrawal charges.
- Limited acceptance: plastic money may not be accepted in small outlets or for daily needs.
