A debit card is a payment card that deducts money directly from your checking account. Also called “check cards” or “bank cards,” debit cards can be used to buy goods or services or to get cash from an ATM. Debit cards can help you reduce the need to carry cash, although using these cards can sometimes entail fees.
Key Takeaways
- Debit cards are payment cards that reduce the need to carry cash or physical checks to make purchases.
- Debit cards can be used at ATMs to withdraw cash.
- Debit card purchases may require a personal identification number (PIN), but some can be made without one.
- Withdrawal from an out-of-network ATM may come with additional fees.
- Some debit cards offer rewards, similar to credit card perks.
How a Debit Card Works
A debit card is linked to your checking account. It appears similar to a credit card but functions differently. The amount you can spend on a debit card is determined by the balance in your account, unlike credit cards that come with a predetermined credit limit. Your debit card can either be digitally linked to your account or function as an offline card, which may cause longer transaction processing times.
Unlike a credit card, you do not accumulate debt when you use a debit card because you are accessing available funds in your account. There are no monthly minimum payments because there is no debt. Debit cards enable you to withdraw cash from ATMs and make purchases, some of which may not require entering your PIN. These transactions deduct directly from your checking account in real-time, limiting your expenditure to the available balance and subject to daily purchase limits.
Fees Associated with Debit Cards
Though debit cards generally avoid annual membership and cash-advance fees, they can have other charges:
- ATM Transaction Fee: If you use an out-of-network ATM, you might incur fees.
- Insufficient Funds Fee: Overdrafting the amount available in your account can lead to these charges, also known as non-sufficient funds (NSF) fees.
- Overdraft Fee: With overdraft protection, transactions can exceed your balance but will include an overdraft fee.
- Replacement Card Fee: If your card is lost or damaged, reissuing could cost you a fee.
- Foreign Transaction Fee: Using your debit card for transactions in foreign currencies often comes with this fee.
Prepaid debit cards also come with various fees, including monthly maintenance, reloading, balance inquiry, inactivity, and foreign transaction fees.
Debit Card vs. Credit Card
Though often issued by the same companies, debit and credit cards have key differences:
Financing
Debit cards act like digital checks, using funds you already have, whereas credit cards provide a revolving loan. Credit cards handle the merchant’s payment and then bill you. Unpaid balances accrue interest.
Rewards
While some debit cards offer rewards, credit cards typically provide better perks, including cash-back offers, travel points, and other advantages.
Protections
You’re liable for up to $50 of fraudulent charges with both credit and debit cards, but credit cards often offer zero-liability policies.
ATM Use
Both types permit cash withdrawals, but credit card withdrawals are cash advances, leading to immediate interest and higher rates, unlike the direct funding available with debit cards.
Pros and Cons of Debit Cards
Pros
- Safer than carrying cash
- Does not incur debt
- Easier qualification requirements than credit cards
Cons
- Expenditures are limited to available cash and daily limits
- Potential fees apply
- Fewer perks compared to credit cards
- Limited fraud protections
Additional Information
Features of a Debit Card
Debit cards often come with PIN capabilities and can offer purchase rewards if issued by major companies.
Purchase Protections
Purchase protections on debit cards vary by issuer but are generally less comprehensive than those offered by credit cards.
Online Availability
You can typically get a debit card through online application processes for financial institutions that offer digital accounts.
Age Requirements
While financial products are limited for minors, some banks offer debit cards to individuals with a parent or guardian attached to the account. Minors often must be at least 13 to obtain a card, although some institutes offer cards to children under this age in an adult’s name.
Conclusion
A debit card is an essential tool issued by banks and credit unions that allows you to access your checking account funds for purchases and ATM withdrawals. With no risk of incurring debt, understanding fees, protections, and potential rewards can help you manage and optimize the use of your debit card.
Evaluate the services and benefits of different accounts to find the best-fit debit card for your needs.
Related Terms: credit card, ATM, checking account, PIN, overdraft protection
References
- Federal Trade Commission. “Using Debit Cards”.
- Wells Fargo. “Debit Card Questions”.
- FDIC. “Overdraft and Account Fees”.
- Wells Fargo. “Selected Terms and Conditions for Wells Fargo Debit and ATM Cards”.
- PNC Bank. “Consumer Schedule of Service Charges and Fees”.
- Consumer Financial Protection Bureau (CFPB). “What Types of Fees Do Prepaid Cards Typically Charge?”
- Consumer Financial Protection Bureau. “Credit Cards”.
- PayPal. “Business Debit Card”.
- Michigan Department of the Attorney General. “Credit Card v. Debit Card”.
- Bank of America. “What Is a Credit Card Cash Advance?”
- Federal Trade Commission. “Lost or Stolen Credit, ATM, and Debit Cards.”
