Rounding it up
Debit cards are traditionally linked to your chequing account, and they only let you spend the money that you already have.
Credit cards are a line of credit that allows you to spend up to your predetermined limit. But credit cards are sort of like micro-loans that you have to repay later.
KOHO offers reloadable debit-style cards that are packed full of great features like cash back and zero hidden fees.
KOHO also offers a number of other products to help you meet your financial goals, like Credit Building, Cover, and interest-earning savings accounts.
As a modern consumer, you likely have a bunch of different financial accounts, from chequing and savings accounts to RRSPs and TFSAs.
Two of the most important financial instruments in your life, however, are debit and credit cards. These two little pieces of plastic may look alike on the surface, but they’re very, very different.
KOHO offers lots of different features to help Canadians master their money. This raises the question: Is KOHO debit or credit?
The short answer is that KOHO works like a debit card, but it uses the Mastercard network. So, when checking out at the store, you’d let the cashier know you’re paying with credit.
In this article, we’ll take a look at some of the kinds of accounts KOHO offers and where they fall on the spectrum of credit or debit. We’ll also take a look at some of the important reasons you may choose one over another and tell you about a third type of card that can be an awesome addition to your wallet.
Credit and debit: what’s the difference?
Before we get too far, it’s important that we all understand the difference between a debit and a credit card.
A debit card is a payment card that’s directly attached to a bank account. When you use a debit card at a store, gas station or online, the money comes right out of your account (for the most part; more on that later). You can generally only spend as much as you have, so if your account runs dry, you won’t typically be able to spend any more money.
A credit card, on the other hand, is a line of credit.
With a credit card, a financial institution basically lets you charge as much as you want up to your predetermined credit limit. So, if you have a credit limit of $1,000, you can make purchases up to that point.
At the end of your statement period, you’ll get a bill detailing how much you need to pay the credit card company to settle your debt. If you don’t pay the whole amount by the due date, you’ll be subject to interest, which is dictated by the APR (annual percentage rate) of the card itself. Interest on a credit card is usually somewhere between 10 and 25%—yikes!
As you can imagine, there are some pros and cons to debit and credit cards. Some of the pros of debit cards include:
Simple & direct – With debit cards, you can only spend the money you have. There’s no middle man and no other bills to worry about.
Interest-free – Debit cards don’t charge interest on your purchases because the money you’re spending is already yours. If you’re someone who has inconsistent income or difficulty budgeting, debit cards can be helpful in preventing you from spending beyond your means.
No annual fees – For the most part, debit cards don’t have special monthly or annual fees (though the accounts they’re tied to often do). Double-check with your bank before you open an account to ensure there are no hidden fees on your debit card.
Of course, there are some downsides to debit cards, too. These include:
Direct access – When you use your debit card, you’re using the money you already have. This means that if you’re a victim of fraud or need to return merchandise, you won't have that cash available to you until the situation is resolved.
Credit building – Debit cards aren’t lines of credit, so they don’t help you build your credit score. This can be a disadvantage if you’re looking to build your credit over time.
Spending limits – You can only spend as much as you have when you make purchases with a credit card. While it is good to only spend within your means, there are times when you may need to make an unexpectedly large purchase in an emergency. This can be impossible to do if you only have a debit card.
What about credit cards, you might ask? There are many advantages to credit cards, too, such as:
Fraud protection – Credit card companies go out of their way to have robust fraud departments to protect consumers (and themselves). This helps ensure that your information stays secure and, in the event of fraud, most credit card companies have no-liability policies that protect you from financial loss.
Short-term financing – Sometimes you just need some extra dough to cover car repairs or pay for your kid’s camp expenses. Credit cards are great for these kinds of purchases, especially if you’re waiting for your paycheque to arrive at the end of the month.
Cash back & rewards – Some debit cards will have cashback programs, but they’re not that common. With credit cards, on the other hand, you’re more likely to find options for cashback and travel rewards.
Credit cards aren’t perfect, either, so they definitely have their downsides. This includes:
Interest and fees – If you don’t pay your entire credit card statement balance at the end of each month, you can be subject to interest payments. To make matters worse, if you don’t pay your credit card bill on time, you could be stuck with late payment fees. These fees can quickly snowball and become unmanageable if you don’t stay on top of your account.
Overspending – Credit cards allow you to, theoretically, spend more than you have. This is good sometimes in an emergency but can make things difficult for you in the long term if you consistently live beyond your means.
Credit Score – Failing to pay your credit card bills on time will hurt your credit score, which can make it difficult for you to get other loans in the future.
So is KOHO debit or credit?
KOHO accounts are... drum roll please... prepaid accounts!
Technically speaking, KOHO is a reloadable prepaid Mastercard, which means that you can only spend the money that you have in your account. You can open a personal or joint account with KOHO and can direct deposit paycheques, make purchases, and pay bills all in one spot.
There are a variety of different kinds of KOHO accounts out there, too, so there’s something out there to suit any Canadian.
Just need something simple? The KOHO basic account is a perfect choice as it offers just the features you need with no monthly fee.
But for just $9 a month, you can get KOHO Extra and enjoy lots of additional perks, like a break on certain foreign transaction fees and international ATM usage.
The cooler thing about KOHO is that it has some features that traditionally only come packaged with credit accounts.
Wait—a debit-like account with credit card features? That’s incredible! (We know).
So, what are these cool credit card-like features that you get with KOHO? Some of these great KOHO benefits include:
Cash back – With a KOHO Easy account, you’ll earn 1% cash back on groceries, transportation and extra cashback at select merchants.
Security – The problem with a lot of debit card accounts is their limited fraud protection. That’s not the case with KOHO, though. In the KOHO app, you can lock your card anytime you want. You can also use a virtual card when shopping online to keep your information as secure as can be.
Tracking – KOHO wants you to meet your financial goals. That's why the KOHO app comes loaded with budgeting and tracking tools to allow you to better understand where your dollars go each month.
But wait, there’s more…
KOHO’s accounts offer some features that credit cards and other accounts don’t. This includes:
No hidden fees, ever – e-Transfers? Free. NSF? No thank you. Interest charges? Absolutely not. Plain and simple, you pay exactly what you see on the KOHO website and not a cent more. Don’t want to pay anything? We’ve still got an account for you!
Interest – No, we’re not talking about the kind of interest that you have to pay. Rather, KOHO offers interest on top of the cash back you’re already getting on your purchases.
KOHO can help your credit, too
One of the most important aspects of your financial life is your credit report and score. If you’re young and don’t have much credit or if you had some bad financial dealings in the past that have damaged your score, you may need a hand getting your credit back on track.
Aside from the great products we’ve already discussed, KOHO also offers a Credit Building tool, which, for just $10 a month, allows you to (re)build your credit score (so long as you make on-time payments). When you use Credit Building, KOHO regularly reports your payment activity to credit bureaus, which means you might be able to see the impact after just a few months!
The verdict: is KOHO debit or credit?
KOHO is undoubtedly a debit card-style account. That’s because your KOHO card is reloadable and it only lets you spend the money that you already have.
But there’s so much more to KOHO than a debit card.
We’ve got an awesome app, we’ve got credit building tools, and we’ve got cashback on your purchases. Plus, we don’t charge hidden fees and we always work to help you learn to make the most of your finances. What more could you ask for?
Dan is a runner and writer living in the Washington, D.C. area, where he currently works for a financial services trade association as the Communications Director.