Debit cards are seen to be like credit cards in many ways, because they can be used in the same outlets and they look and feel the same. For this reason, some people assume that debit cards function in the same way as credit cards. But as to function the two are quite different, and one of the most telling differences is that debit cards do not have the interest free grace periods of credit cards.
Grace periods are the time span between making a purchase with a credit card and when the payment falls due, usually including the time between the purchase and the statement date. As well, there’s usually an additional bit of time between the statement date and the date on which interest begins to accrue on any unpaid balance. This total period is known as the grace period.

Grace periods can be used as a way of cutting interest costs, as that time span can be used for making the usual household purchases with the credit card balance being paid off in full at the end of every month. This gives the card holder an effective interest rate of 0% p.a., no matter the credit card’s advertised rate, while the funds that would have paid interest are used to pay off the mortgage or some other debt. This lowers the card holder’s overall interest rate, covering all the household’s debts, and is a cornerstone of sound financial management.

However, debit cards work in a different way to credit cards. Whereas a credit card has its own account, a debit card instead directly accesses an associated bank account and the money spent comes out of this account. The debit card’s account is often a transaction account, which pays very low, or no, interest when the account is in credit. This has the same practical effect as a grace period, as the interest rate will be effectively zero.

However, if the debit card’s account goes into overdraft, or the account is a savings account which does pay interest or a home loan account, then the interest element will be higher and it will be charged from the day the card is used.