Bank of Israel Clarifies Differences Among Four Debit and Credit Card Types and Their Loan Implications

The Bank of Israel officially categorizes four types of payment cards in Israel: immediate debit, deferred debit, revolving credit, and prepaid cards. Each type differs primarily in when the money leaves the account and whether the cardholder is effectively borrowing money.

Immediate debit cards, known as debit cards, deduct funds from the bank account almost immediately after a transaction, with no credit or loan involved. These cards are limited to the account balance and are often issued to minors or those without credit lines. They are encouraged by the Bank of Israel due to lower merchant fees and help users control spending by showing transactions promptly.

Deferred debit cards, commonly referred to as credit cards by most Israelis, accumulate purchases throughout the month and charge the full amount on a fixed date, usually the 2nd or 10th of the month. This provides interest-free credit for up to about 40 days. However, if the balance is not paid in full, fees and interest on overdrafts apply, and missed payments can affect credit scores. Payment dates can be adjusted to better align with salary schedules.

Revolving credit cards convert monthly balances into loans with minimum payments and carry high annual interest rates averaging 15.6%. This type of credit is the most expensive and can lead to long-term debt if only minimum payments are made. The Bank of Israel has scrutinized this product due to its marketing as a cash flow aid rather than a loan. Consumers can reduce costs by paying in full, converting balances to lower-interest loans, or using savings.

Prepaid cards operate on funds loaded in advance, with no credit or interest. They suit parents giving limited spending power to children, budget management, or those without bank accounts. However, they may have loading fees and limited protections compared to other cards.

Understanding these distinctions is crucial as the same plastic card can represent very different financial products. The Bank of Israel requires clear disclosure of card types and balances, and credit reports reflect these differences, impacting future loan eligibility. Consumers are advised to review monthly statements carefully to identify their card type and manage their finances accordingly.