A debit card is a convenient way to pay, and it pays to know the details of how they work.
Not all card swipes are created equal. A debit card may look like a credit card, but instead of borrowing money to make purchases, debited funds come directly from your checking account balance. You don’t pay interest with a debit card, and you don’t build your credit history, either.
How Debit Cards Work
Like cash, debit card payments are often subtracted instantly, although some purchases may take a few days to clear your account. If you don’t have enough money, purchases are typically declined and won’t go through.
Your checking account may include overdraft protection to use your debit card even without the money to cover a purchase. But this service isn’t free. You’ll likely owe a fee for the overdraft, and need to replenish the account so your balance isn’t in the red. The average overdraft fee is $35 per instance, so it’s not a smart strategy for overspending.
How to Get a Debit Card
If you’re not offered one, request a debit card when you open a checking account to easily access your money. You can also use it at ATMs to withdraw money from your account—this service is typically free at your bank and network ATMs, but there could be extra charges. Most debit cards carry daily transaction limits and caps on how much you can withdraw from an ATM.
What is a PIN?
When you set up a debit card you receive a personal identification code, or PIN, which is a four-digit security code. You enter your PIN on a keypad most of the time when you use a debit card, but it isn’t always required. Your PIN is always required to withdraw money from an ATM. Never share your PIN with anyone and don’t store it in your wallet or write it on your card.
Should I use a Debit Card Online?
You can make purchases with your debit card anywhere a credit card can be used. Debit cards work online, too, but this comes with a higher risk because it’s linked directly to your checking account. If your debit card number is stolen, thieves can access all your money.
Federal regulations limit your liability for fraudulent purchases to $50, but you must notify your bank within two days of discovering your card or card number is compromised. If you wait longer than two days, you could be on the hook for up to $500. Also, funds from unauthorized charges won’t instantly return to your account, which could cause cash flow problems or overdrafts.
What about Prepaid Debit Cards?
Prepaid debit cards aren’t linked to your checking account. They are loaded with a specific amount of money that must be replenished when funds run out or replaced with a new card. Many prepaid debit cards charge activation and other use fees, and some can only be used at specific retailers.
Debit Cards vs. Credit Cards
When you make a purchase…
- Debit cards: Amount is deducted directly from your checking account
- Credit cards: Amount added to your balance and must be paid later
When you make cash withdrawals…
- Debit card: No fees if you use an ATM within your bank network
- Credit cards: Upfront fees for cash advances that also accumulate finance charges at a higher APR
Do they accrue interest?
- Debit cards: No, purchases come immediately out of your account
- Credit cards: Yes, interest is owed on any balances not paid in full by required date
Do they build credit history?
- Debit cards: No, debit card transactions have no impact on your credit history
- Credit cards: Yes, credit card are part of your credit history, for better or for worse
Do they offer purchase protections?
- Debit cards: Fewer protections against fraudulent purchases
- Credit cards: More protections against fraudulent purchases
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