hen I heard about IndusInd Bank's [Get Quote] credit-cum-debit-cum ATM card, I was curious.

It sounded unbelievably convenient. But, on doing some groundwork, I realised it wasn't really accurate to call it that.

The Mahila card -- which is what it is called -- is unusual no doubt, but it's not quite the hat trick it is made out to be.

Let's understand how cards work

The Mahila is basically a debit card.

You can use debit cards at the ATM machine and for making payments.

The money, in both cases, gets directly debited from your account.

Say you have Rs 10,000 in your account. The amount you can spend, or withdraw, through your card cannot exceed this limit.

But a credit card intrinsically means what you spend is not related to how much money you have in your account. You are restricted only by your credit limit. This is the limit the bank sets on how much you can spend through your credit card in a month.

So, even if you have only Rs 10,000 in your account but your credit limit is Rs 50,000, you are free to spend up to Rs 50,000.

You could also have Rs 1,00,000 in your account, but your credit limit is only Rs 50,000. In a debit card, you would be able to spend or withdraw upto Rs 1,00,000. In a credit card it would be restricted to Rs 50,000, which is your credit limit.

The major difference: in a debit card, the money is directly pulled from your account. In technical terms, this means you have no free credit line.

A credit card requires the bank to make a payment to the merchant establishment (shop, hotel or wherever you spend money using your card). The cardholder settles the bill later.

This is not the case with a debit card. Here, the amount is deducted immediately from your bank account.

The merchant establishment will have a debit terminal. When you use your card to make the payment, it will be swiped. The moment this is done, an electronic message is sent to the bank which checks to see if the customer has that much money in his/her account.

If yes, the amount is debited (taken) from the customer's account and credited (added) to the merchant's account.

• Smart ways to manage your money

How does the Mahila offer both?

There's more than meets the eye.

The Mahila is just a debit card with a personal overdraft facility. It works as a debit card as long as there is money in your bank account. Once your bank balance drops to a miniscule amount, then you can take a personal overdraft.

This amount will be credited to your account and, since your debit card is linked to the balance in your account, you can continue using your card.

But, now, it is no longer free access to your bank account. You are paying interest on the money you use.

• How to start saving

How much overdraft are you allowed?

That depends on a number of elements.

Option 1 

What the bank will give you: If you have a fixed deposit with the bank, then it will be 90% of the deposit amount.

What you will have to pay: 2% over and above the deposit rate

Option 2

What the bank will give you: An overdraft amount based on some investments like National Savings Certificates or RBI bonds. These will be kept with the bank as security.

What you will have to pay: The bank's Prime Lending Rate. This is the interest rate a bank charges its 'prime' customers or its most creditworthy clients.

Option 3

What the bank will give you: If you do not have a deposit with the bank, you can produce your salary slip for three months along with your bank statement for six months. The bank will then arrive at a limit. While this requirements hold good for a personal loan as well, in this case you will also need a guarantor.

What you will have to pay: 12% per annum.

Broadly, the interest rate for your overdraft would be in the range of 12% to 14%. It will be calculated on a daily reducing basis. But you will have to pay a monthly minimum of 5% of the previous month's outstanding amount.

• Should you save or prepay your loan?

What's good about this card?

If you need the money, it is cheaper than a personal loan which is normally in the vicinity of 18% to 20%. 

Moreover, it is cheaper than revolving on your credit card where the interest is around 27% per annum.

Once you have the money in your account, you can withdraw whatever amount you like from the ATM or utilise the card as a debit card.

No denying, it is inconvenient to approach the bank for an overdraft.

What's more, it is only for women (don't ask me why!).

Illustration: Dominic Xavier