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Debit Cards

 | Jul 23,2007

The world has gone plastic.  Usually that meant credit cards, but now that has come more and more to mean debit cards as well, as many people use debit in lieu of using cash.  Debit cards can also be used to withdraw cash at an ATM or even at a checkout. Debit cards can generally be used anywhere that credit cards are accepted.  For all these reasons, debit cards are seen as a convenient alternative to cash.  

What Are Debit Cards?

Debit cards are like credit cards in that they can be used to electronically access funds. However, unlike a credit card, debit cards don’t access lines of credit. Instead they access funds that have been deposited into a savings or checking account. When purchases are made using a debit card, money is taken from the deposited funds. The advantages of using debit cards include: no monthly payments, no interest charges, no credit checks and just about anyone who wants one can get one.  The disadvantage is that you cannot spend above what you already have in the bank.

Bank Issued Debit Cards

The first type of debit card you can apply for are bank issued debit cards. These cards are usually tied to your checking account. When you use your debit card money is withdrawn electronically from your account and paid to the vendor. You can think about this type of debit card as an electronic check. The fees for using this type of debit card are minimal. Generally you will only be charged a fee for ATM withdrawals and when doing this it is best to withdraw money at an ATM connected to your bank branch.

Pre-Paid Debit Cards

The second type of debit card that you can use is a pre-paid debit card. These cards are marketed in retail stores, grocery stores, in gas stations and online. These cards are not tied to a bank account. Instead you deposit money into the card's account, either at the store or by phone, and then you use the card like you would a credit card. This type of debit card does have several fees associated with its use, including an initial card purchase fee, a loading fee, NSF fees, annual fees and transaction fees.  Why bother paying fees and interest on money you've deposited yourself?  One major reason: it's an easy way for people to establish credit if their credit is damaged due to past defaults or a limited credit history.  

Debit Card Protection

One misconception about debit cards is that they are not as susceptible to fraud as credit cards.  This is not true.  Debit card numbers can be stolen just like credit card numbers.  In fact, credit cards can be seen as safer to use because the funds don't come automatically out of an account.  When buying something on credit, it is easier to get reimbursed for stolen money than it is with debit, so it's important that you take all of the same precautions with debit transactions as you do when using a credit card. 

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