Bank of Israel Clarifies Differences Between Debit, Deferred, Revolving Credit, and Prepaid Cards

The Bank of Israel officially categorizes four types of payment cards used 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, commonly known as debit cards, charge the bank account almost instantly after a purchase, 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 reflecting transactions immediately.

Deferred debit cards, often what Israelis call credit cards, accumulate purchases over a 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 40 days. However, if the balance is not paid in full, the account may go into overdraft with fees and interest, affecting credit scores. Users can request different billing dates to better align with income.

Revolving credit cards convert monthly balances into loans with interest, allowing users to pay a minimum amount and carry the rest forward. The average annual interest rate is about 15.6%, making it the most expensive credit option. Regulators have scrutinized this product due to its marketing as a cash flow solution rather than a loan. Paying only the minimum can extend debt for years and increase interest costs significantly.

Prepaid cards operate on funds loaded in advance, with no credit or interest. They are suitable for budgeting, minors, or those without bank accounts. However, they may have loading fees, usage restrictions, and limited consumer protections.

The article emphasizes the importance of understanding which card type one holds, as the same plastic card can represent very different financial products. Users can identify their card type through their online account statements, which show billing details and any revolving balances. This distinction affects borrowing status, credit reporting, and financial planning.