What Is a Debit Card? - SmartAsset

A debit card is a physical payment card that is used to electronically access the money you have in your bank account to make purchases or transfer money. Debit cards can be used at point-of-sale terminals or online to transfer money from your checking account to the company or to the person you’re transferring money to. Unlike a credit card, your debit card will immediately transfer money from your active checking account and cannot typically be used to make a purchase if your bank account doesn’t have the required available funds. Here is what you need to know about your debit card. Consider working with a financial advisor as you manage budgeting and spending.

How Debit Cards Work

A debit card is a form of payment that enables you to make easy and secure payments online or through a payment terminal by transferring money directly from your bank account. Unlike other payment cards, you aren’t pulling money from a credit line and instead are only using the money you already have in a checking account.

A debit card can be used to withdraw cash from your bank account as well as make purchases through the use of the card at an ATM. Your debit card will work at ATMs, payment terminals or through payment platforms like Square or Google Pay. You can also use the card to transfer money via platforms like Venmo or Cash App.

Most banks will provide you with a debit card once you meet their qualifications for opening a bank account. You can elect not to receive a debit card, but if you have made an initial deposit then the bank is likely to automatically issue your own card.

Types of Debit Cards

Not all debit cards work the same way, as some aren’t tied directly to your entire checking account. Here are the most popular types of debit cards and how they work.

ATM Cards: An ATM card is something that used to be more popular than it is today. It is used to access your bank account at an ATM machine but isn’t used to make regular purchases.
Prepaid Debit Cards: A prepaid debit card can be tied to the bank account of your choice but it isn’t issued by the bank that houses your account. They can be used to make purchases just like a regular debit card but are pre-loaded with money, which is the full amount you can use when making purchases. You have to reload the card when it runs out of money.
Regular Debit Cards: These cards are the ones described above that access the available funds in your bank account at ATMs or through making purchases.
Electronic Benefits Transfer (EBT) Cards: If you qualify for certain benefits with your state then you will be issued an EBT card to make purchases of specific items, such as groceries.

Debit Card Fees

Bank accounts have fees, and debit cards are no extension. The fees you pay can vary depending on what bank you use and how you use your debit card. You’ll want to pay close attention to the details of your account and the documentation that comes with your debit card so you know what you might be charged for. Here are some of the typical fees you may encounter when using your debit card.

Out-of-Network Fees: This occurs when the ATM you’re using isn’t within the network of your bank. The fee could be anywhere from $1 to $10 or more (especially at casinos). Based on general research, the typical out-of-network fee is around $3 to $5 per instance.
Monthly Fees: Some banks charge a monthly fee to use your bank account and all of its features, including your debit card usage.
Foreign Transaction Fees: If you make purchases or withdrawals outside of the U.S. using your debit card then you could incur a foreign transaction fee. The fee is typically charged as a small percentage of your transaction.
Overdraft Fees: If you use your debit card to make a purchase that goes over your available balance then the bank may charge you an overdraft fee, often around the $30 to $40 mark.
Debit Card Replacement Fees: If you lose your debit card then you may incur a small charge to get it replaced. Some banks will replace your card for free the first time it needs to be replaced.

While not a fee, it should be noted that you can be charged an account hold when making some purchases with your debit card. This could lower your available balance in your checking account for a period of time.

Pros and Cons of Using a Debit Card

Debit cards have both pros and cons when you’re using them for everyday purchases. For one, there are no annual fees when using a debit card and you’ll never be charged interest on the money you spend. It’s an affordable way to make purchases and you won’t have to worry about repaying anything later.

Convenience is also a major benefit of using debit cards. In today’s digital age, debit cards can be used nearly everywhere. From making online purchases at your local grocery store or even paying your entrance fee at a high school sporting event. Debit cards are a universally accepted form of payment, making it easy for you to use as you need.

These cards aren’t without their cons, though. For instance, you may be charged a fee to use your debit card depending on your transaction. Using a debit card frequently can also lead to overspending. That’s because it can be pretty easy to spend beyond your budget when transactions are happening directly on the spot.

Debit Cards vs. Credit Cards

Debit cards differ from credit cards in a few different ways. This is mainly evident in the structure of what funds are being used. A debit card pulls from the money you’ve already made available for the transaction. On the flip side, a credit card uses a line of credit that you’re borrowing from. With a credit card, you can pay back the amount over time but will be charged interest.

Credit card debt can accumulate and be difficult to pay off for some because of the interest that adds on every month. Debit cards are only using money that is already yours. In turn, you don’t have to borrow the funds from the bank. You also won’t be charged interest for using a debit card considering the money is withdrawn immediately.

What to Do If Your Debit Card Is Lost or Stolen

If your debit card is lost or stolen then it’s in your best interest to notify your bank immediately. Many banks will provide a banking app that you can use to lock or report your card as stolen. This will help avoid purchases being made by whoever has your debit card’s information in-hand. Most banks will deactivate your card and send you a new one after you notify them.

If this happens to you, it’s important to go through your recent transactions thoroughly. Make certain no money was stolen out of your account via purchases or ATM withdrawals. Any money that was taken out of your bank account is often replaced. However, this can depend on how early you notify the bank.

You may only incur up to $50 of theft if you make a timely report on your stolen card. Some banks may even waive that for you. You often have two days to report the lost or stolen card. If you fail to do so, then you could incur up to $500 of liability by losing that amount of money that was taken.

Bottom Line

A debit card is a convenient banking tool used to make purchases anywhere credit cards are accepted. It can be an easy way to buy groceries or transfer money to others through the right platform. However, it’s important to keep track of your spending so that you stick to your budget. Additionally, make sure all transactions occurring with your card were actually made by you.

Banking Tips

When managing your money, you may want to create a financial plan for the future. A financial advisor can help you with this. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Some people may prefer to build a budget on their own. To start the process, try SmartAsset’s budget calculator.