How Debit Cards Work

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How Debit Cards Work

A debit card is a plastic card that gives the cardholder electronic access to a bank account in his or her name at a financial institution. It also goes by the name of check card or bank card. The purpose of a debit card is to pay for goods and services with funds taken (debited) from that account. The funds are transferred immediately from the account to the vendor.

A debit card therefore differs from a credit card; with a credit card, you get billed in a few weeks and must make payment then.

The appeal of debit cards is convenience. It’s easier and faster for most people to carry a small plastic card than a checkbook or a wad of cash.

The fees

Debit cards are not always free to use. There are overdraft fees if you withdraw more money than you have in your account. If you use your card at an ATM not run by your financial institution, you may be charged a fee. There may be fees for simply having the card, fees for not using the card, fees for ATM use at your own financial institution, activation fees, and some customer service fees. Some institutions even charge you a fee if you enter a PIN (personal identification number). As debit card use grows around the world, there is the potential for more fees to be put into place. Your financial institution must, by law, disclose all fees it charges on debit cards.

There are two ways for debit cards to be used at the point of purchase:

• With a PIN. In this case, you swipe your card through the merchant’s electronic machine, press "Debit," and enter your PIN. You don’t need to sign for the purchase. You may even have an opportunity to get cash back, meaning that you authorize the card to withdraw additional money from your account.
• With a signature. In this case, you swipe your card through the merchant’s electronic machine, press "Credit," and enter your signature with a plastic pen. In this case, you are technically using it as a credit card even though funds are still being withdrawn from your account.