What Is a Debit Card and How Does It Work?

What is a debit card?

Definition of a debit card: A debit card is a payment card that deducts funds from your checking account to enable simple, safe in-person and online transactions. The money on your debit card is your own; you're not taking out a loan against it, unlike with a credit card or "buy now, pay later" service. Additionally, you may use your debit card at ATMs to deposit or withdraw cash.

Here's how to get a debit card

Get a checking account open. When you open a checking account, most banks and credit unions provide you with a free debit card. Set up your PIN for ATM use and purchases after activating it by following the instructions.

Take a look at prepaid debit cards. Try using a prepaid debit card instead of a bank account if you don't have access to one; NerdWallet has a list of the top prepaid debit cards.

Examine other associated items and accounts. A secured credit card might be a better choice if your goal is to establish credit. Alternatively, choose a second-chance checking account if you are not eligible for a standard checking account.

What's the difference between a debit and a credit card?

Since debit cards take money straight out of your bank account to make purchases or make ATM withdrawals, customers must pay with them right away. Overdraft fees could apply if a debit transaction results in a negative balance on your account. 

You can defer paying for your purchases with credit cards. In essence, you are borrowing money from the credit card company on the condition that you will be able to repay it after your statement term.  You can be charged late fees or interest if you don't pay the balance in full or on time. 

What's the difference between a debit and an ATM card?

A standard ATM card is only intended for cash withdrawals from machines, however, a debit card may be used for both purchases and ATM cash withdrawals.

The only exception is if the ATM card bears the Visa or MasterCard brand, in which case it takes money right out of your bank account and works similarly to a debit card.

What's the difference between regular debit cards and prepaid debit cards?

Prepaid debit cards require you to load the card in advance using cash, cheques, internet transfers, or in-person visits to retailers. Regular debit cards process transactions from your bank account in real time whenever you purchase or withdraw cash from an ATM.

If you don't want to spend cash for your online purchases but don't have access to a bank account, prepaid debit cards can be a decent choice. But remember that prepaid cards don't aid in credit development.

What's the difference between regular debit cards and prepaid debit cards?

Prepaid debit cards require you to load the card in advance using cash, cheques, internet transfers, or in-person visits to retailers. Regular debit cards process transactions from your bank account in real time whenever you purchase or withdraw cash from an ATM.

If you don't want to spend cash for your online purchases but don't have access to a bank account, prepaid debit cards can be a decent choice. But remember that prepaid cards don't aid in credit development.

Here are some typical debit card fees

Transactions with debit cards are only sometimes free. Here are some expenses to be aware of:

ATM out-of-network fee: Typically $3. This happens if you use an ATM that isn't connected to your bank.

Usually, between 1% and 3% of the transaction amount is the foreign transaction charge. This happens when you shop or take money out of an ATM outside of the United States. (View fees at large banks.)

Replacement debit card fees: Usually nominal, occasionally free (fast delivery may incur additional costs). This happens if you need a replacement card mailed because the original was lost or stolen.

Fee for overdraft or insufficient funds: $35 or more at times, although frequently less for online banks and credit unions. If you spend more money than you have in your checking account, this happens. (Observe transactions with debit cards aren't always free. Here are some expenses to be aware of:

ATM out-of-network fee: Typically $3. This happens if you use an ATM that isn't connected to your bank.

Here's what to do if your debit card is stolen

Make a quick phone call to your bank and send a follow-up letter. Depending on when you notify your bank about the loss or theft, you can be held accountable for any purchases made using a lost or stolen debit card. Depending on when you report the loss or theft, the following is the maximum amount you are liable for:

Before any fictitious charges: $0.

$50 maximum within two business days.

$500 maximum within 60 calendar days.

Following 60 days: No safeguard.

How Does a Debit Card Work?

You may use your debit card to make payments anywhere major credit card brands, such as VISA, Mastercard, and RuPay, are accepted by partnering with debit card companies.

Just as with a credit card, you swipe, insert, or utilize contactless pay at the card terminal while making an in-person debit card transaction. The next step is to input your personal identification number (PIN) into the terminal; however, many retailers permit you to use your debit card without providing a PIN. One security feature that confirms your identity is your PIN.

Your transaction is authorized after your bank confirms that you possess the funds necessary to complete the purchase. Your transaction may appear as "pending" on your bank statement, meaning that although the merchant has debited your account, your bank has not yet released the funds to them. Your transaction will seem to be authorized after the bank transfers the funds to the retailer.

Because you already have the required amount of money in your connected account, you may execute transactions using your debit card to pay for goods or withdraw cash from an ATM.

If you have extra money in a backup account, such as a savings account, you might be able to overdraft your account by a specific amount, depending on your bank. Nevertheless, the funds you require must normally be in your account to use your debit card to make purchases.

Bottom Line

With debit cards, you may pay with your card whenever you choose, online or offline, rather than writing a check. Compare your available credit card, debit card, and prepaid card alternatives; it's crucial to match the cards in your wallet with your spending patterns. You may have the flexibility you want and easy access to the cash you need for everyday needs by combining the three.