A debit card is a payment card that makes payments by deducting money directly from a consumer’s checking account, rather than on loan from a bank. Debit cards offer the convenience of credit cards and many of the same consumer protections when issued by major payment processors.
There are two types of debit cards that do not require the customer to have a checking or savings account, as well as one standard type.
Standard debit cards draw on your bank account.
Electronic benefits transfer (EBT) cards are issued by state and federal agencies to allow qualifying users to use their benefits to make purchases.
Prepaid debit cards give people without access to a bank account a way to make electronic purchases up to the amount that was preloaded onto the card.
A prepaid debit card is as good as cash—and sometimes better:
It is a safe way to carry money around—unlike, say, a wad of paper money. Prepaid cards also come with certain consumer protections, while cash does not.
A prepaid debit card can be used for online purchases, it can make a more attractive gift than cash, and anyone who wants to stick to a strict budget, or who has had trouble managing credit cards, could also consider using a prepaid debit card.
You can use a prepaid debit card for any transaction that you might otherwise use a credit card or regular debit card for. In many instances, the recipient of your payment may even be unaware that the card is prepaid.
Some employers pay their workers with prepaid debit cards called payroll cards (which can be useful if the person doesn’t have a bank account or direct deposit). Many government benefits are also available via prepaid debit cards, including Social Security.
Frugal consumers may prefer to use debit cards because there are usually few or no associated fees unless users spend more than they have in their account and incur an overdraft fee. (The no-fee advantage does not hold for prepaid debit cards, which frequently charge activation and usage fees, among other costs.)
Debit Cards, as we all know, are very much in use in recent times. They have eliminated the need for carrying physical cash all around. Not only do they make transacting and paying easy in a matter of seconds, but also, they are widely accepted. From your local grocer to major restaurants and retail outlets, you can pay with your Debit Card or plastic money, which is linked to your bank account.
Typicall you can’t earn rewards with a debit card. While debit cards don’t earn points or miles for each purchase, the accounts from which they draw funds may offer users perks in exchange for a certain number of transactions. Standard debit cards also often offer a round-up feature that allows users to transfer small amounts of money to a savings account, a feature that’s impossible with credit cards.
Credit and debit cards may look alike, but their benefits and drawbacks are very different. If building credit and cashing in rewards is important to you, then credit cards are essential tools for your financial journey. If you prefer to keep a tighter rein on your finances, then a debit card is a better bet. No matter which you choose, make sure that you know the fees associated with each account.
Advantages of a Debit Card
Here are some Debit Card benefits to know about.
- Convenient to use: debit Cards are extremely simple to use. Since the payment is deducted directly from your bank account, a place where the money already exists, it can be done instantly. It is much quicker than having to wait for a credit transaction to go through or having to worry about having an adequate amount of cash in the account, to cover your expenses. Debit Cards make transactions fast, easy and convenient to use.
- Works as an Emergency Fund: debit Cards have the ability to give you cash. They double up as ATM cards and allow you to withdraw money from an ATM. Therefore, working as an emergency fund for you. In addition to the ATM use, a majority of stores offer cash back options at checkout. You can shop conveniently and reasonably using your Debit Card.
- Self Protected: debit Cards are protected by a four-digit pin number or PIN (Personal Identification Number) which you set yourself. This PIN is essential when making almost any purchase with your Debit Card. It gives you a great deal of safety against theft. You also receive a notification every time a transaction goes through, double verifying the transaction. These cards can also be frozen very easily and quickly. So if you lose it, you can prevent damage by freezing it within no time.
- Easy to Obtain: the only and most important thing that you must have, in order to have a Debit Card is have a bank account. Anyone can open a bank account with a minimum deposit. So, you can use a Debit Card with the only pre-requisite being a bank account that is linked to your card.
- Sets a Budget: one of the best things about a Debit Card is that you cannot spend more money than you have, which means you cannot go into debt. This helps you to budget, since every time you transact, the money is deducted from your account.
- Avoid Debt: a debit card draws on money that the user already has, eliminating the danger of racking up debt. Retailers know people usually spend more when using plastic than if they were paying cash.9 By using debit cards, impulsive spenders can avoid the temptation of credit and stick to their budget. This can help keep you out of high-interest debt.
- Fraud Protections: in addition, some debit cards – particularly those issued by payment processors – are starting to offer more of the protections enjoyed by credit card users. The key is reporting fraud or theft as soon as you realize it has occurred. Your liability for fraudulent purchases is determined by the time frame in which it’s reported. Waiting too long to let the bank know that your card has been used for unauthorized purchases could result in you being held responsible for some or all losses.
- No Annual Fee: though many credit cards charge an annual fee, debit cards don’t. There’s also no fee for withdrawing cash using your debit card at your bank’s ATM. Credit cards, on the other hand, can charge a cash advance fee plus a steep interest rate for that convenience. However, you may pay other fees to maintain your checking account.