Speaking on his BBC podcast, Lewis raised concerns over the real costs and limited protections associated with debit card use. His remarks come amid rising interest rates and persistent fraud cases, prompting a closer look at how different payment methods impact consumer finances.
Overdrafts on Debit Cards May Cost More than Credit Card Debt
On his BBC Sounds podcast, Martin Lewis addressed a common misconception among UK consumers: that using a debit card is inherently safer or more financially prudent than using a credit card. According to Lewis, this assumption often leads people to overlook the hidden costs associated with debit card usage, particularly when an overdraft is involved.
“If you are overdrawn, a debit card is a debt card too,” Lewis said, underlining that the average interest rate for a high street overdraft now stands at 40% annually. In contrast, standard high street credit cards typically charge closer to 25% APR, making the overdraft cost significantly higher over time.
This comparison matters because many people are unaware that a debit card transaction drawing on an overdraft is effectively a high-interest loan. “It just isn’t that simple,” Lewis added, warning that assumptions about debit cards being debt-free can lead to costly financial missteps.
In his assessment, Lewis made clear that neither option is ideal when debt is involved, but if a consumer has no alternative, the credit card route may be less expensive, provided it’s used and managed properly. His broader message was that understanding how these products work is vital for making financially sound decisions.
Credit Cards Offer Stronger Protections and Spending Incentives
Lewis also highlighted the statutory protection benefits that credit cards carry under Section 75 of the Consumer Credit Act 1974. This regulation makes credit card companies jointly liable with retailers for purchases valued between £100 and £30,000, even if only part of the payment is made on the card.
“So, if something goes wrong, you can go back to it. On debit cards, you only get charged back.” he explained. In contrast, debit card users are limited to chargeback schemes, which are voluntary and lack the legal force of Section 75. This means that while banks may assist in refund disputes via chargeback, there’s no legal obligation for them to do so, reducing the consumer’s leverage in cases of disputes, scams or defective goods.
In addition to legal protections, Lewis pointed out that some credit cards offer rewards schemes. These can include cashback offers, as high as 5% in introductory periods, or 1% on an ongoing basis—alongside other benefits like travel points or purchase insurance.
Yet Lewis was careful to note that the advantages of credit cards only apply if the user pays off the balance in full each month. Otherwise, any potential rewards are easily outweighed by interest charges.
“Then for many people, done sensibly as long as you’re paying your credit card off in full every month and you’ve chosen the right credit card, it’s often a better way to spend than a debit card.” he said.
For consumers unsure about which payment method to prioritise, Lewis’s advice serves as a reminder to look beyond surface-level assumptions and assess the underlying terms and conditions of each option. With overdraft rates rising and fraud risks growing, understanding the true cost of payment choices remains as relevant as ever.
