Debit cards are a convenient way of using your money, rather than carrying a bunch of cash around. Though it looks like a credit card, when you use your debit card money is deducted from your linked checking account. In contrast to credit cards, you can not spend more than you have without incurring an overdraft fee.
Debit cards work in one of two ways:
- You can use it at the ATM to immediately withdraw cash.
- You can use it directly to buy something. The transaction usually takes a day or two to clear depending on when the vendor presents the transaction for payment.
Debit cards are commonly used, yet many people are unfamiliar with their advantages and disadvantages.
- 1 Know Your Way Around a Debit Card
- 2 Advantages of a Debit Card
- 3 Disadvantages of a Debit Card
- 4 Some Guidelines
- 5 Despite Chip-enabled Technology, Debit Card Fraud Still Happens
- 6 Frequently Asked Questions
- 7 Is it possible to link multiple accounts with the same bank to a debit card?
- 8 Why did my account get locked after entering my PIN incorrectly multiple times?
- 9 Is there overdraft protection for my debit card?
- 10 I have a poor credit score. Do I still qualify for a debit card?
- 11 Are there any bank charges associated with a debit card?
- 12 What is the reason for the transition from debit cards with magnetic strips to chip-based debit card?
- 13 What is a PIN for a debit card?
- 14 Other Little Known Facts About Debit Cards
- 15 Accepting Debit Cards in Business
- 16 Transactions are approved more quickly
- 17 Accepting debit cards gives online businesses more opportunities
- 18 Consider debit card fees as a cost of business
- 19 Accepting debit card payments may increase the complexity of accounting for cash for businesses
- 20 Subscribe to our newsletter
- 21 Thank you!
Know Your Way Around a Debit Card
Here are the details you should be familiar with on a debit card:
The card number: a unique, sixteen-digit number.
The issue and expiration date: self-explanatory, the dates are in the format of month and year (MM/YY).
The logo: this is the logo of the bank issuing you your card. Typically, it is a Visa or Mastercard.
Customer service number: a toll-free number on the back of your card. You can call this number for any type of questions or issues related to your account or card (loss of your card, reversal of overdraft fees, etc.)
The signature bar: sign this area once you receive the card or you may not be able to use your card with certain merchants.
CVV number: a unique number to every card. It is a three-digit number provided each time you make an online transaction. It is a verification process to add extra security to your card.
Advantages of a Debit Card
- Easily obtainable. Once you have a checking accounting with a bank, a debit card will be issued to you.
- Convenient. As compared to taking the time to write out a check, you can just enter your card’s chip or swipe your card.
- Safety. As mentioned above, carrying a debit card is safe than carrying around a bunch of cash.
- Accepted everywhere. When you’re out-of-town, your card is accepted all over the world.
- Keeps you in budget. Since you can not spend more than you have in your account, this helps you avoid fees associated with debt and credit cards (late payments, etc.). This makes this type of financial tool kid-friendly to use.
- Pin number protected. Your pin is required for making any kind of purchase. Therefore, if your card is lost or stolen, no unauthorized activity can occur.
Disadvantages of a Debit Card
- No grace period. Because funds immediately leave your account when you buy things, you can’t borrow funds on credit. A credit card does. It leaves cash at your disposal until the end of your next billing period.
- Checkbook balancing. With online banking a common thing these days, this is less of a disadvantage. Make sure to check your account to see how much money you have left.
- Less protection than a credit card. You may be liable for up to a certain amount of fraudulent debit card transactions. Check with your bank to learn the details.
- Fees. Using your debit card at an ATM not affiliated with your bank will cost you in fees. As opposed to a travel credit card, you may also be charged fees for foreign transactions abroad.
- Doesn’t improve your credit score. By building your credit score, you’ll have access to lower interest rates when borrowing and increased credit limits. Your credit score is an important number that’ll impact your life.
- No reward points. By earning and taking advantage of credit card points, you can use credit card rewards to travel and spend on other purchases. Debit cards do not offer this type of incentives. Though, debit cards DO offer their own set of incentives, such as travel insurance, etc.
- Merchant blocks. A hold may be put on your money to ensure you have enough money for a particular transaction. A common place where a hold is put on your money is at gas stations. The hold is generally released in a day or two after your transaction clears.
- Prevent against loss or theft.
- If it happens, notify your bank immediately.
- Choose a unique pin that only you know. Don’t use a number that’s easy to guess like your phone number or birthday.
- Memorize and protect your PIN number.
- Keep receipts for your records.
- Review your statements for any unknown or unusual transactions.
- Use chip-enabled technology. This is safer than swiping the magnetic strip.
Despite Chip-enabled Technology, Debit Card Fraud Still Happens
There are a ton of debit card transactions every second. According to the Federal Reserve, there are still about 13.9 million fraudulent debit card transactions a year.
Frequently Asked Questions
Some banks my allow this. Call the toll-free customer service number on the back of your card to see if you can do this.
Why did my account get locked after entering my PIN incorrectly multiple times?
This is for protection against fraud and misuse of the card. Call the customer service number on the back of your card to retrieve or change your PIN. Note down your PIN and keep it somewhere safe.
Is there overdraft protection for my debit card?
Yes, there usually is overdraft protection for your card. In our experience, the remaining balance in your account is withdrawn for the transaction in question and the remainder is charged to your credit card. However, there may be associated overdraft fees for this type of convenience.
I have a poor credit score. Do I still qualify for a debit card?
There is no correlation with your credit score and eligibility for a debit card. After opening a savings or checking account with your bank, you will be issued a debit card.
Are there any bank charges associated with a debit card?
Sometimes there are associated fees with your debit card, such as card issuance fees, annual maintenance fees, or ATM fees for exceeding a certain number of ATM transactions allowed per month. Some of these fees may be waived for maintaining a certain minimum balance in your account. Contact your bank for what applies to you.
What is the reason for the transition from debit cards with magnetic strips to chip-based debit card?
This is a new type of technology that provides additional security. There has been many cases of credit card fraud in the past with people stealing your card information when magnetic strip cards were more commonplace. Now, it is mandatory for all banks to issue chip-based cards.
What is a PIN for a debit card?
PIN means personal identification number. This number can be set or changed by you. You authorize transactions on your debit card with this number. This helps prevent fraudulent transactions. Keep your PIN safe and confidential.
Other Little Known Facts About Debit Cards
- Some banks give you a limited number of debit card transactions per month. In order to keep using your card, you’ll then be a charged a fee for the additional transactions.
- You can use your debit card processed as a credit card (takes up to three days instead of an instant transaction).
- You can write a check and process it as a debit transaction.
- It is more difficult than a credit card to get your money back on disputed charges.
Accepting Debit Cards in Business
Accepting debit cards is a common practice with many businesses. This gives customers an option other than the myriad of other payment methods available. Think Venmo, Zelle, Paypal, etc.
Here is a list of things to consider when accepting debit card payments for your business.
Transactions are approved more quickly
Approval time for a customer transaction is typically quciker than checks and credit cards. Once a debit card is swiped, the payment processing unit connects to a computerized network and verifies the customer has enough money to make the transaction. Fund transfers usually take one or two days to clear and transfer into a business’ bank account.
Accepting debit cards gives online businesses more opportunities
Having a host of different payment options, an e-commerce business broadens its reach to their target market.
We will keep that in mind in the future as we monetize our blog.
All in all, we highly recommend blogging as a business as a long-term investment.
Consider debit card fees as a cost of business
There are usually payment processing fees associated with debit card transactions. Fees are for leasing card processing equipment, support fees for resolving card issues, and individual transaction fees.
Accepting debit card payments may increase the complexity of accounting for cash for businesses
When reconciling a business’ records to bank statements, card processors send a separate statement that adds another layer of work for accountants/bookkeepers. This may increase the accounting workload for a business, especially if they lack the financial experience to perform such work.
In conclusion, this post is not to push the use of debit cards over credit cards, but to increase your awareness of debit cards as a personal finance tool.
In future posts, we’ll be exploring other tools such as credit cards (balance transfers, debt consolidation), forex cards, and more.
In the meantime, feel free to read and explore some of our other popular blog posts.
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