When someone uses a debit card, the money is taken directly from their checking account. They are also called “check cards” or “bank cards,” and you can use them to purchase goods or services or get cash from an ATM or a store that lets you add more money to a purchase.
How Does a Debit Card Work?
Most debit cards are rectangular pieces of plastic that look like credit cards. It is connected to the user’s bank or credit union checking account. The size of the account determines how much money can be spent with it (the amount of funds in the account).
Debit cards are kind of like a mix between ATM debit and credit cards. You can use the former to get money from an ATM and the latter to buy things. In fact, many banks are getting rid of their plain, one-use ATM cards and replacing them with debit cards from major card payment processors like Visa or Mastercard. This kind of debit card comes with your bank account.
The debit card works the same way whether it is used to get cash or to buy something: it takes the money right away from the account it is linked to. So, you can only spend what’s in your debit card, and the amount of cash you have to spend will change from day to day depending on how much money is in your account.
Most debit cards also have limits on how much you can spend in a 24-hour period. This means that you can’t spend over a certain amount in a day. You can buy things with a debit card either with or without a PIN. If the card has the logo of a major payment processor, it can often be used without a PIN, just like a debit card.
Fees for debit cards
Most of the time, debit cards do not even cost extra: There are no fees for joining or getting cash advances.
But they don’t always keep you from having to pay fees: If you take money out of an ATM that isn’t owned by or connected to the bank that gave you your debit card, you may be billed an ATM transaction fee. What happens if you use the card to purchase more than you have in your account? You can get charged for not having enough money in your account, just like when a paper check bounces. If you signed up for overdrafts, you will have to pay fees for going overdrawn.
You might also have to pay a fee to get a new card if yours gets lost, damaged, or stolen. If you buy a product in a foreign currency, you might also have to pay a foreign transaction fee.
Credit Card vs. Debit Card
Since many bank debit cards are issued by credit card companies, it can be hard to tell the difference between a credit card and a debit card. A debit Mastercard looks the same as a credit Mastercard, except that it says “debit” on the front. It can be used anyplace Mastercard is accepted.
Some debit cards have reward program like credit card reward program. For example, you can get 1% cash back on all purchases with some debit cards. Many of the same protections apply to a debit card with the logo of a credit card company. For example, if someone steals your card number and makes fraudulent purchases, you won’t be held responsible.
But credit cards and debit cards are not the same in the way they work. When you use a debit card to buy something, it’s the same as signing a check or putting down cash: You pay for the item right away by taking money from your bank account. When you buy something with a credit card, you are basically borrowing the money from the credit card company. It pays the merchant and then sends you a bill. You pay it back every month when you get your bill. If you don’t pay a whole amount, you have to pay interest on the rest, just like with any other loan.
Benefits and Drawbacks of a Debit Card
When people use debit cards to buy things, it’s like they’re using cash, or money they already have, instead of money they borrowed on credit. They are much safer than cash, though. Every debit or check card transaction will show up on the account holder’s monthly statement.
If you have bad credit, it’s easier to get a debit card because all you have to do is set up an account with the bank. You shouldn’t have to apply for a debit card like you do for a credit card. Nor do users pay annual fees. Since debit cards don’t cost merchants much, they don’t usually have minimum purchase amounts like they do with credit and debit cards.
