A debit card increases the security and convenience of money management. What Is a Debit Card in Simple Words?
We will explain everything, from how to take advantage of advantageous features to the prices you might expect to incur.
What is a debit card?
While a debit card resembles a credit card in appearance, it functions more like a check when making purchases.
Instead of accumulating debt, a debit card withdraws funds directly from a checking account.
How does a debit card work?
Unlike a check, which can take days to deposit and then transfer from one bank or credit union to another, a debit card works instantly.
Mobile payment apps such as Square, PayPal Here, and other credit card readers may also accept debit cards.
Unlike the typical POS equipment found in larger stores, these mobile payment devices are usually used by smaller businesses.
They are connected to cell phones and other mobile devices via the jack for headphones.
While debit cards are primarily intended to eliminate the need to carry cash, their original purpose was to facilitate easy withdrawals from checking accounts.
The development of the automated teller machine liberated customers from bank hours.
Types of Debit Cards
- Prepaid debit cards: Prepaid debit cards are loaded with a predetermined amount of money and are not tied to a bank account. You cannot spend more than the available balance on the card when making purchases or withdrawals from an ATM.
- Check cards resemble: credit cards but are linked to a checking account and function like debit cards.
- Virtual debit cards: These are digital replicas of actual debit cards that may be used for online shopping. They are linked to your bank or savings account and permit secure Internet transactions.
- Foreign currency debit cards: These cards are created exclusively for use abroad. They enable you to make purchases and ATM withdrawals in the local currency, with the amounts automatically taken from your home currency account.
Debit Cards vs. Credit Cards
Both debit cards and credit cards can be used to make purchases and cash withdrawals. However, they operate differently and affect your finances differently.
1. Funding source: A debit card is linked to a checking or savings account at a financial institution, whereas a credit card is issued by a credit card company and allows you to borrow money.
Spending limits: Debit cards typically do not have a spending limit.
Typically, the credit card issuer establishes a credit limit for credit cards.
2. Interest and fees: Credit cards may charge annual fees, balance transfer fees, and other fees in addition to interest on unpaid balances.
3. Purchases and withdrawals: When you use a debit card, you are making a purchase with your own money.
When using it to withdraw cash, you are withdrawing your own funds.
4. Monthly bills: There are no monthly bills with a debit card because the money is deducted from your checking account.
5. Credit score: Using a credit card responsibly, like making on-time payments on your balance and staying within your credit limit, can raise your credit score.
6. Fraud protection: Credit cards frequently provide more comprehensive fraud protection than debit cards.
What costs are associated with debit cards?
While most debit cards are free when you open a checking account at a bank or credit union, there are fees associated with debit cards.
The most likely fee you’ll encounter is the ATM fee.
ATM Fees
If you withdraw money from an ATM outside of your bank’s network, you will likely be charged up to $3 per transaction.
Transaction Fees
If you use your debit card with a 4-digit personal identification number (PIN) instead of your signature for credit and debit transactions, you may incur a small fee.
Replacement Card Fees
It is a one-time fee to replace your card, which is typically only charged in these situations.
Overdraft or Insufficient Funds Fees
If you overdraw your checking account, the bank may accept the payment rather than decline it.
In addition to the negative balance resulting from the purchase, the bank will be owed an amount between $30 and $35.
What if your debit card is lost or stolen?
Banks offer protections against the misuse of lost or stolen debit cards, but you must act swiftly.
The longer you wait, the more you are personally responsible for debit card charges.
If you report a card lost or stolen prior to any fraudulent activity, you are not liable for any charges made to your checking account.
If you report it stolen and misused within two business days, you are only responsible for up to $50 in charges.
If reported within 60 days, the fine increases to $500.
If you wait more than 60 days to report your debit card lost or stolen, you are legally responsible for all debits made from your checking account.
How do you use your debit card to make online purchases?
Purchases made with your debit card are not limited to physical storefronts.
It is also simple to determine who has the item in stock, the best price, and the quickest shipping.
But while buying things online can make shopping much easier, it can also make fraud much easier. Fortunately, banks also take measures to ensure your safety here.
CVV Codes
Because the retailer cannot physically see the debit or credit card, card processors use a CVV code to add an extra layer of security.
In addition to the card number and expiration date, a CVV code is also requested on online sales forms.
Regarding American Express, the card’s front features a four-digit code.
This additional request aids in establishing your identity and preventing fraud, especially when a physical card is not present.
Setting Up Automatic Payments with a Debit Card
With recurring payments, also known as autopay, the cardholder authorizes periodic debit card charges that are deducted from their checking account.
This recurring payment may be variable, such as monthly payments for gas or electricity to utility companies.
They can also be static, such as a monthly subscription to Netflix or Spotify. Recurring payments can be an easy way to ensure that you pay your monthly bills on time.
They help you avoid late fees if you’re forgetful and free up your time if you have a full schedule.
That said, it’s important to keep track of these payments for a few reasons.
Keeping track of recurring payments helps you monitor the amount of money in your bank account, particularly if they are variable, such as electric bills.
Canceling Automatic Payments
You may find services that you’re paying for but no longer use.
Autopayment is becoming increasingly prevalent, particularly for streaming video and audio services.
If you haven’t used the service for an extended period of time, they may even issue you a partial refund. After all, asking never hurts.
If you have asked a vendor to stop charging you and they have refused, you can tell your bank to reject the charges.
You have 60 days to dispute the transaction with your bank, so it’s best to keep an eye on your statements for any discrepancies.
What exactly is a prepaid debit card?
While most debit cards are linked to checking accounts, there is another type known as a “prepaid debit card.”
Prepaid debit cards can have numerous disadvantages. A prepaid debit card can typically be used by anyone who possesses it.
There are also larger fees, including ATM fees and monthly fees. If you intend to use one, it is prudent to compare shops and read the fine print.
Bottom Line
Using a debit card rather than cash or checks can be more convenient and secure than other payment methods.
Banks and financial institutions are fighting back, but ultimately it is your responsibility to use your debit card responsibly.
See also: How to open a bank account?
Debit Card FAQs
Is it safe to use a debit card?
As long as you take precautions to protect your personal and financial information, debit cards can be used securely.
This includes keeping your card secure, shopping on secure websites, and regularly monitoring your account activity.
Do debit cards have a credit limit?
No, debit cards do not have a credit limit. You can only spend the amount of money available in the bank account that is linked to your debit card.
What is the security code on a debit card?
This code is also referred to as a “card verification value” (CVV) or a “card security code” (CSC).
The security code is typically located in the signature panel or to the right of the signature panel on the back of the card.
It is not included in the magnetic stripe on the back of the card, so anyone with access to your card information cannot copy it.
The security code is used as an added layer of protection when making purchases online or over the phone.
It helps ensure that the person making the purchase is in possession of the physical card and not just the card information.
What is the postal code on a debit card?
A postal code, also known as a zip code, consists of five digits in the United States. It is used to identify a particular geographic region within the nation.
A postal code is frequently required when shopping online, over the phone, or at gas station pumps.
It is used to verify your address and ensure that the correct person is using your card or account information.
Typically, the postal code on a debit card is the same as the postal code associated with the card’s billing address.
This information is typically printed on the card’s front or back. It is not the same as the security code (also known as a card verification value or CSC) that is used to enhance purchase security.
What is the routing number on a debit card?
In the United States, a “routing number” is a nine-digit code used to identify a specific financial institution.
It is also known as an ABA routing number or transit routing number (RTN).
A routing number directs payments and other financial transactions to the appropriate bank or credit union.
It is typically located along with the account number and check number on the bottom of a check.
Typically, the routing number is not displayed on debit cards.
Can I use a debit card to pay bills?
Yes, debit cards can be used to pay bills online and over the phone. Some merchants may also accept debit cards for in-person bill payments.
Can I use a debit card internationally?
Before traveling, confirm with your financial institution the terms and conditions for using your debit card abroad.
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