What Is a Debit Card and How Does It Work?
Debit and credit cards both have their uses, but a debit card might be better for people with certain financial habits. Keep reading to find out what a debit card is and whether it can help you manage your money.
What Is a Debit Card?
A debit card is a payment card that lets you pay for purchases or withdraw money directly from your checking account. Also referred to as an ATM or bank card, a debit card offers the convenience of cashless transactions without incurring debt you’d have to repay with interest.
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 free debit card as part of the process. If not, you can request one.
Good To Know
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 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.
Where To Use Debit Cards
Debit cards are valid for in-store or online purchases wherever the payment processing network indicated by the card’s logo — Visa or Mastercard, for example — is accepted. You can also use a debit card to withdraw money from your bank account, whether via an ATM or by requesting cash back at the register when you pay with the card in a PIN transaction.
Advantages and Disadvantages of Debit Cards
Debit cards have several advantages, but they’re not the best choice for every situation.
Advantages of Debit Cards
- 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.
- A debit card can be a way to simplify your finances because you see all your purchases and withdrawals on a single bank statement.
- You don’t have to meet credit requirements to get a debit card.
- Debit cards provide the convenience of plastic but don’t rack up debt like credit cards do.
Disadvantages of Debit Cards
- Debit card usage isn’t reported to the credit bureaus, so it doesn’t help you establish or strengthen your credit.
- Debit cards have daily spending and withdrawal limits that can cause your card to be declined in the event that you try to make a large purchase or ATM withdrawal.
- Debit card rewards programs are usually not as robust as those offered by credit cards.
- Some merchants, such as gas stations, place a temporary hold on funds in your account to ensure you have enough money to pay for the purchase. These holds are usually released within 48 hours.
Debit Card Fees
Although debit cards don’t accrue monthly interest charges, your bank might charge other fees, such as:
- ATM withdrawal fees, especially if you use an out-of-network ATM
- Overdraft fees
- Foreign transaction fee
What Is the Difference Between a Debit Card and a Credit Card, ATM Card and Prepaid Card?
To give you a better understanding of how a debit card functions, here’s how it compares with other types of cards.
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Debit Cards vs. Credit Cards
Debit cards and credit cards differ in several ways:
- Whereas you access your own money with debit cards, credit cards are funded by credit card companies, and you pay them back for the amount you charge — plus interest, when applicable
- Credit cards are more secure because they are not directly attached to a bank account.
- Credit cards usually offer more rewards for purchases.
- You can incur interest charges with credit cards, but not with debit cards.
- Whereas debit and credit cards both have payment processing network logos, your debit card has the word “debit” somewhere on the face of the card to help you differentiate between it a credit card.
Debit Cards vs. ATM Cards
Although the terms are sometimes used interchangeably, debit cards and ATM cards aren’t necessarily the same thing:
- ATM cards can only be used at kiosks and merchants within your ATM network. You can find your ATM network on the back of your ATM card.
- Debit cards have a payment processing network logo such as Mastercard or Visa on the face, and they can be used at any kiosk or merchant that accepts payments from that network.
Debit Cards vs. Prepaid Debit Cards
Traditional debit cards are also like prepaid debit cards because in both cases, funding is dependent on your actual money, not borrowed funds. Here are the biggest differences:
- A debit card is linked directly to your bank account, and a prepaid card retrieves the money you loaded onto your prepaid debit card.
- Depending on the account preferences you established with your bank, it might be possible to overdraw your account using your debit card. The few prepaid cards that allow overdrafts, which providers might refer to as “purchase cushions,” generally allow you to go over by just $10, and only if you receive qualifying direct deposits to the account.
- Because a prepaid debit card is not directly linked to your bank account, it is less vulnerable to fraudulent charges.
- Most debit cards can be added to digital wallets. Depending on the prepaid debit card issuer, it might not be possible to add the card to your digital wallets.
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 banks have anti-fraud measures in place to keep your card and your account secure.
The cards currently being issued by banks have an embedded chip that drastically reduces the risk of fraud. You’ll know your merchants’ card readers are chip-enabled if they require you to insert your card rather than swipe it. PINs and security codes also help to secure your account.
Some banks have a 0% liability policy in the event that your card is lost or stolen. Even if your bank doesn’t, the law limits your liability to the following amounts:
- $50 if you report the card missing within two days
- $500 if you report the card missing later than two days but within 60 days
- $0 if you report the card missing after more than 60 days
Can a Debit Card Help You Manage Your Money?
A debit card can help you manage your finances as long as you track your account balance and remember that you’re essentially spending cash directly from your account. The interest charges you save by spending carefully and choosing debit over credit might even free up money you can use to build savings.
Jared Nigro contributed to the reporting for this article.
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- Washington State Department of Financial Institutions. "Debit Cards Frequently Asked Questions."
- National Consumer Law Center. "Summary of the Consumer Financial Protection Bureau’s Prepaid Card Rule."