What is a debit card?
A debit card is a payment card that deducts money directly from a consumer’s checking account to pay for a purchase. Debit cards eliminate the need to carry cash or physical checks to make purchases. In addition, debit cards, also known as control cards, offer the convenience of credit cards and many of the same protections for consumers when issued by major payment processors like Visa or Mastercard.
Unlike credit cards, debit cards do not allow the user to go into debt, except perhaps for small negative balances that could be incurred if the account holder has purchased overdraft protection.
[Important: Debit cards usually have daily purchase limits, meaning it may not be possible to make an especially large purchase with a debit card.]
How Debit Cards Work
How a debit card works
Debit cards have a dual purpose: they allow the user to withdraw money from their current account via an ATM or via the cash back feature offered by many merchants at the point of sale. In addition, they also allow the user to make purchases.
ATM cards, on the other hand, only allow the user to withdraw money from an ATM, while credit cards only allow purchases if the credit card holder has a ‘cash advance activated by PIN code (and the cash advance will bear interest, unlike withdrawing cash from a current account).
Debit card purchases can usually be made with or without a Personal Identification Number (PIN). If the card has the logo of a major payment processor, it can be executed like a credit card and the card holder will not need to take the risk of exposing his PIN code. The money will always come directly from the cardholder’s checking account, and there will be no finance charges when the debit card is used as a credit card. Some debit cards also offer reward programs, similar to credit card reward programs, such as 1% discount on all purchases.
Payment tracking with debit cards
Each transaction made with a debit or check card will appear on the account holder’s monthly statement, making it easier to track purchases. Consumers actually make their purchases in cash, that is, with the money they actually have, as opposed to the money borrowed on credit. But unlike cash purchases, there is no way to lose track of the amounts spent on a debit card. And even if the lost or stolen money is gone forever, a lost or stolen bank card can be reported to the bank, which can deactivate the card, remove any fraudulent transactions from the cardholder’s account, and issue a new card.
Key points to remember
- Debit cards eliminate the need for cash or physical checks to make purchases, but these cards can also be used at ATMs to withdraw cash.
- Debit cards usually have daily purchase limits, which means that it may not be possible to make a particularly large purchase with a debit card.
- Debit card purchases can usually be made with or without a Personal Identification Number (PIN).
- Debit card purchases are easy to control and there is no way to lose track of spending, unlike using a credit card, since money comes straight from a checking account.
- Some debit cards also offer reward programs, similar to credit card reward programs, such as 1% on all purchases.