When you open a checking account, and sometimes a savings account, with any major bank, you receive a debit, or check, card. It looks like a credit card, but it usually has the word “Debit” printed on it somewhere. So what is this card and how should you use it?

A debit card allows you to access the funds in your checking account. It is the card you use to get cash out of an Automated Teller Machine (ATM) and can usually be used anywhere that accepts credit cards.

Let’s look at some of the features of debit cards:

 

Spending:

When you pay with a debit card, the money is drawn from your account immediately. This means that if you spend more than you have in your account, you will overdraft your account, and will usually owe the bank a fee on top of the amount you overdrew.

For example, if you only have $25 in your account, but pay for a $30 dinner, you will overdraft your account by $5. If your bank charges a $35 overdraft fee, you now owe the bank $40 for that five dollar mistake!

Also, if you make ANOTHER purchase with that card, you’ll be charged ANOTHER $35, and so on. Obviously, it’s super important that you keep track of what you have in your account, which is great practice for using a credit card.

 

Limits:

The amount of money you can spend on a debit card is limited by the amount of money you have in your bank account. Spend any more than that and you’ll start racking up overdraft charges.

 

PIN:

Many debit cards require you to enter a Personal Identification Number (PIN) when you withdraw cash from your account and when you make purchases. Others allow you to make purchases using the “Credit” selection on the checkout machine, but still require a PIN at the ATM. When you get your card, it will come with instructions that tell you how yours works.

 

Security:

Because of the direct connection to your checking account, debit cards can be very dangerous if they are lost or stolen. If someone steals or finds your debit card, he or she may be able to make purchases with it, and if the thief has your PIN, he or she can withdraw money from your account. Anything this person uses will immediately be taken from your account. Disputing these charges takes a lot of time and effort, and you may never see that money again.

 

Credit History:

Debit cards do not affect your credit history.

 

Fees:

Banks generally do not charge fees for debit cards, but you might have to deposit a certain amount, usually something like $25 to $100, in the bank to open the card in the first place. 

 

Perks:

Debit cards usually do not carry perks, but a few banks are starting to add cash back, sign-up bonuses, and miles to their checking programs.

 

When should you use a debit card?

I would say that any time you’re buying something in person and the card doesn’t leave your hand, it’s fine to use a debit card. I would avoid using a debit card online or at places like restaurants, where your information is more likely to be stolen. It may never happen, but there’s still the chance your hard-earned cash might disappear.

If you think your information has been stolen, or see charges on your card that you didn’t make, call your bank immediately and tell them to put a hold on the account to prevent that card from being used again until you sort out what’s happening.
Debit cards can be super useful for building responsible money habits without running the risks of using credit cards.

Want to compare debit cards to credit cards? Head on over to What is a credit card?