How Do Debit Cards Work?

A debit card is a small, plastic card that can be conveniently used for purchasing goods and services. A debit card is linked to your bank of choice, and any money that you spend with it comes out of your personal checking account or savings account, depending on which you use.

Debit cards are similar to physical cash, as you only pay the exact amount for your purchase without paying any additional interest or fees. The money comes out of your chosen bank account automatically when you use a debit card.

Debit cards make it easy for you to keep track of your spending and purchases, especially if you use services such as online banking. This makes a debit card a brilliant choice for those who wish to track the money they spend regularly.

Normally, a debit card can also be used at an ATM to withdraw physical cash. You will have to enter your PIN (Personal Identification Number) in order to withdraw this cash. You should try to use your own bank’s ATM machines in order to avoid any unwanted fees.

A debit card also often allows you to receive “cash back” at many major retailers. This service means that you can withdraw physical cash at a register while also purchasing your items. This service is very convenient for those who wish to purchase goods and withdraw physical cash at the same time. You will be prompted to enter your PIN number if requesting “cash back” at a store, similarly to how you would at an ATM machine.

The PIN number associated with your debit card makes it incredibly hard for thieves and criminals to use your card to withdraw money from your account at ATMs. Despite this security, you should always cancel your debit card if it is lost or stolen, and your bank is also likely to have a fraud protection scheme in place for these occasions also.

Debit cards have no interest rates (unlike credit cards) which makes them one of the most transparent and straight-forward ways to extract money from your bank account. The amount you pay for your good or services will be the exact amount that is taken from your bank account.

However, the only exception to this is if you have insufficient funds in your account. If you have insufficient funds (i.e. no money) in your bank account, then your card may be declined when you try to make a purchase. Some banks, on the other hand, allow you to spend money “below zero” but will charge you fees or interest for this service. Similarly, some banks also have “arranged overdrafts” which allow you to spend money “below zero” for a pre-arranged fee or interest rate. These are the only times that you will be charged fees or interest for using debit cards.

Many countries (for example, the UK) are now starting to introduce “contactless” debit cards and credit cards, where your debit card can simply be lightly touched on a payment terminal in order to complete a purchase. There are thresholds on the amounts that these cards can use their contactless system for, however. This is due to security reasons.