What Is a Debit Card and How Does It Work?

Learn how debit cards work and why you need them.

A debit card is the love child between cash and credit cards: You are only able to spend the money you have on hand, but with the convenience of a plastic card. Unlike a credit card, the money you spend or withdraw with a debit card is coming directly out of your bank account — meaning there is no future payment with interest rates.

Debit and credit cards both have their uses, but a debit card may be better for people with certain financial habits, and is still a popular payment option. Even with so many choices for credit cards, 37% of consumers surveyed by GOBankingRates revealed they prefer to pay with a debit card. Keep reading to find out whether a debit card can help you manage your money better, too.

Here’s a quick preview of the topics covered in this guide to debit cards:

Before diving into the specifics, take a look at who a debit card is best for and who it wouldn’t serve very well:

Best For:

  • Compulsive spenders and debtors. Using a debit card is a way to keep yourself in clarity about your money. You can only spend what you have, so you won’t have the repercussions of high interest rates and suffocating monthly balances. Overall, a debit card can be a way to simplify your finances.
    • People who have poor credit or have not established enough credit to obtain a credit card.
    • People who want the convenience of plastic without having to worry about interest rates and a host of fees.

    Worst For:

    • Anyone who is trying to build or rebuild their credit because debit card usage isn’t reported to the credit bureaus.
    • Anyone planning on making big purchases — debit cards have daily spending and withdrawal limits.
    • Those who want a variety of choices regarding rewards, cash-back, or points on their purchases. Debit card rewards programs are not as widely available or robust as those offered by credit card issuers.

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    Debit Card Definition

    The most important fact to know about a debit card is that it’s attached to your bank account, so you are only spending your money — and that money can run out. To give you a better understanding of how a debit card functions, here’s how it compares with other types of cards.

    Debit Cards vs. Credit Cards

    The difference between credit cards and debit cards are:

    • Credit cards are funded by credit card companies, and you pay them back for the funds you use plus interest.
    • Credit cards are more secure because they are not directly attached to a bank account.
    • Credit cards offer more rewards for purchases than debit card transactions.
    • You can accrue interest with credit cards, but not with debit cards.

    Debit Cards vs. ATM Cards

    You may be thinking that debit cards sound just like ATM cards, and that is mostly true. Both bank cards are attached to your actual money available. The differences are:

    • ATM cards require you to enter your PIN when making purchases for products and services with merchants who are in your ATM network. You can find your ATM network on the back of your ATM card.
    • Debit cards have a Mastercard or Visa logo on the face and can be used at anywhere Mastercard or Visa are accepted.

    Debit Cards vs. Prepaid Debit Cards

    Debit cards are also like prepaid debit cards because, in both cases, funding is dependent on your actual money, not borrowed funds. The biggest differences are:

    • Debit cards are linked directly to your bank accounts, and a prepaid card is only retrieving the money you loaded onto your prepaid debit card.
    • Some financial institutions offer overdraft options with their debit cards, which is not an option with a prepaid debit card.
    • Because a prepaid debit card is not directly linked to your bank account, it is less vulnerable to fraudulent charges.

    Still think a debit card is right for you? Keep reading to find out how to set yourself up with one of these plastic rectangles.

    Don’t Miss: Debit Card Rewards Programs

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    How To Get a Debit Card

    The good news is that getting a debit card is easy. When you open a checking account at a financial institution, you usually will receive a debit card as part of the process. If not, you can request one.

    Pro tip: When you’re considering opening a checking account and getting a debit card, look for a bank that offers a free checking account — or one that makes it’s easy to avoid fees. Compare each bank’s monthly fees for opening and using a checking account. Some banks have daily account balance minimums to avoid fees, while others do not. Careful planning can help you save money.

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      Where To Use Debit Cards

      Debit cards are valid for in-store or online purchases, wherever Visa and Mastercard are accepted. That means you can use it for anything from your late-night nosh to your monthly Amazon haul.

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      Debit Cards and Bad Credit

      Credit cards are not always a great option for people with bad credit because the ones available often have very high APRs. For instance, Capital One has a secured credit card that is considered one of the best out there for people with bad credit. But the card’s APR is 26.99% variable, which can really add up if you don’t pay off your balance each month.

      Although cash is king, sometimes paying with plastic is more convenient — and debit cards give you a way to do that without all the strings. Unfortunately, debit cards can’t help you rebuild your credit. This type of card can, however, stabilize your spending because there are no interest rates that need to be paid every month, nor are you able to spend what you do not have.

      Plus, debit cards are more readily available to people with bad credit because they’re not tied to a promise to pay.

      Related: The Best Prepaid Debit Cards

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      Benefits of Using a Debit Card

      The benefits of using a debit card go beyond alternatives for those with bad credit. There are some major benefits of choosing a debit card over a credit card that may make you see this type of card a great option for you:

      • Debit cards carry much fewer fees than credit cards, especially if you plan ahead with your ATM usage and daily account balance.
      • Your debit card is linked to an account that can probably gain interest — sometimes compound interest with a high APY — which is money you can directly spend with debit card.
      • Debit cards have become more secure with chips, and there’s more security protection these days for online shopping.

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      Are Debit Cards Safe?

      The general fear about debit cards is the risk of becoming a victim of fraud because the card is directly attached to your bank account. But credit card companies have measures in place to deflect and counteract fraud.

      For example, Mastercard’s newest debit card product, Mastercard Enhanced Debit Card, offers 24/7 expert assistance if your card or identity has been stolen, as well as Mastercard Zero Liability, which does not hold you liable for any authorized purchases.

      In general, it is harder for a thief to use your debit card for purchases if your wallet and cards have been stolen because debit cards require a PIN or security code for online shopping.

      Debit cards are also comparatively safer than writing checks. With checks, your account number and other personal information can make it very easy for fraud or identity theft to happen.

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      Debit Card Fees

      Although debit cards don’t accrue monthly interest like a credit card, it doesn’t mean there aren’t other monthly charges or fees you may have to pay. Some checking accounts that are linked to your debit card may have fees you have not considered.

      This table details the monthly fees for different bank checking accounts with debit cards attached.

       

      Comparison of Debit Card Fees by Checking Account
      Bank Checking Account With Debit Cards AttachedMonthly FeeOther Associated Fees
      Chase Total Checking$12
      • $2.50 out-of-network ATM fee
      • $34 overdraft fee
      Bank of America Advantage Plus Banking$12
      • $2.50 out-of-network ATM fee
      • $35 overdraft fee
      Axos Bank Essential Checking$0
      • No overdraft fees
      • Unlimited ATM reimbursement
      PNC Virtual Wallet Select$7
      • Some out-of-network ATM fees reimbursed
      • Funds pulled from other PNC accounts to avoid overdraft fee
      Discover Cashback Debit$0
      • Funds pulled from other Discover accounts to avoid overdraft fee
      • Over 60,000 fee-free ATMs in U.S. available for Discover customers

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      Debit Cards vs. Other Payment Options

      Of course, other payment options exist besides debit cards. Here’s a look at some of them, so you can compare.

      Alternatives to Debit Cards and How They Compare
      ATM Card vs. Debit CardBoth have funds attached to a bank account, but ATM cards are not as widely accepted as debit cards. Debit cards can be used anywhere cards are accepted, while ATM cards can only be used at locations in your ATM card’s network, which is not as wide of a network.
      Credit Card vs. Debit CardThis comparison depends on how well you pay off your monthly credit card balance. If you have no problem paying off your balance in full, then a credit card may be a better option for you because you’ll build your credit and, perhaps, receive hefty points or rewards.

      If paying off your monthly balance is a challenge, then a debit card may be the best for you because it will help you keep from hurting your credit and accruing debt.

      Electronic Benefit Transfer Card vs. Debit CardAn EBT card looks and works just like a debit card, except EBT cards are funded from a state agency benefit program: Supplemental Nutritious Assistance Program. EBT cards are only distributed to qualifying families and individuals who meet a state requirement for assistance for SNAP.
      Prepaid Card vs. Debit CardThe funds available to you on a prepaid card are the funds you load onto the card. A debit card’s funds are whatever funds are available in the linked bank account. If you want a card that works like a debit card, but with the safety of having it not linked to any bank account, a prepaid debit card is a good option.
      Check vs. Debit CardDebit cards still have more protection than paper checks because checks display your bank account number and other sensitive personal data on the face of the check. Additionally, debit cards are more convenient for purchases and usually are attached to the issuing bank’s mobile app.

      Compare: Pros and Cons of Prepaid Debit Cards

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      Debit Card Loss

      The Electronic Fund Transfer Act offers protection on your debit card if you lose it. You are not responsible for any unauthorized transactions if you lose your debit card and report it missing before it is used. If your debit card is used before you report it missing, however, your liability depends on how quickly you report it.

      Here’s a quick look at the potential loss you face, depending on when you report a lost or stolen debit card:

      Debit Card Loss
      When You Report ItYour Maximum Loss
      Before any unauthorized charges are made$0
      Within 2 business days after you learn of the loss or theft$50
      More than 2 business days after you learn of the loss or theft, but less than 60 calendar days after your statement is sent to you$500
      More than 60 calendar days after your statement is sent to youAll the money taken from
      your debit card account, and possibly  money in accounts linked to your debit account

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      The Whole Debit Card Enchilada

      Although debit cards have some risks of identity theft and outside access to your bank account, the amount of debit card purchases are still high in the U.S. According to Visa’s 2018 financial report, debit card purchases were 2% higher than credit card purchases.

      The next time you become a new checking account holder, consider using the attached debit card. Fees are lower, the risk of accruing debt is less and banks are working to make this form of payment safer every day.

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      About the Author

      Jared Nigro is from Pittsburgh, which is obvious by the way he gravitates toward cheese at parties. He is a comedy writer from The Groundlings Sunday Company, Upright Citizens Brigade and has his own digital show on Comedy Central called “Broken People.” When he isn’t being funny, he’s reading books on debt and finance and listening to his favorite finance podcast, ChooseFI.