What Is a Debit Card, and How Do You Use It?


A debit card adds both security and convenience to managing your money. But how exactly can you get one? We’ll explain all the details, from how to take advantage of beneficial features to what kind of fees you can expect to pay.

woman using atm

You’ll even learn how to monitor your debit card and keep your finances as secure as possible. Ready to get started?

What is a debit card?

Simply stated, a debit card, sometimes referred to as a bank card, check card, or ATM card, is a method of transferring money from point A to point B.

It is a method of payment used instead of checks or cash when making a purchase or payment through credit card payment networks such as Visa or Mastercard.

While a debit card looks nearly identical to a credit card, it acts more like a check when making purchases. Instead of charging a debt, a debit card instead draws money from your checking account.

How does a debit card work?

Unlike a check, which can take days to be deposited and then transferred from one bank or credit union to another, a debit card works instantaneously. Debit cards may also be used by mobile payment apps such as Square, PayPal Here, or other credit card readers.

Unlike the typical POS equipment found in larger retailers, these mobile payment devices are typically used by smaller businesses. They are attached to cell phones or other mobile devices through their headphone jack.

Other services like Apple Pay are attempting to eliminate the need for a card at all, allowing you to just tap your phone to initiate the transaction.

While debit cards are primarily designed to eliminate the need for you to carry cash, they were initially designed for you to be able to withdraw cash from checking accounts easily. Before the invention of automated teller machines (ATMs), a customer had to wait until a bank opened before removing cash from their bank account.

With the advent of the ATM, customers were no longer beholden to bank hours. With the swipe of a card and a four-digit code, customers could now withdraw and deposit money at any time of day or night.

Debit Cards vs. Credit Cards

No application: A debit card is typically given with most checking or savings accounts. However, a credit card requires that you fill out a lengthy application and a credit check.

Purchases and withdrawals: When you use a debit card to make a purchase, you’re purchasing with your own money. When you use it to withdraw cash, you’re taking out your own money. With a credit card, when you make a purchase, you’re essentially borrowing money from the bank. And when you use it at an ATM, you’re taking out a cash advance from the bank.

No monthly bills: With a debit card, there are no monthly bills as the money is coming out of your checking account. With credit cards, you will receive a bill that you must make a minimum monthly payment on.

Spending limits: Debit cards typically don’t have a spending limit. You’re only limited by how much you have in your bank account. With credit cards, the credit card issuer generally sets a credit limit.

No effect on your credit: Using a debit card does not affect your credit. You can neither build nor hurt your credit with it. With credit cards, your monthly payment history, in most cases, will be reported to the credit bureaus allowing you to build your credit history if you use the card responsibly.

See also: Credit Card vs. Debit Card: What’s the Difference?

What fees are associated with debit cards?

While most debit cards are free from your bank or credit union when you open a checking account, there are fees associated with your card. The main fee you’ll likely encounter is the ATM fee.

ATM Fees

If you are using an ATM outside your bank’s network, you’ll likely be charged up to $3 per transaction to withdraw money from their ATM.

These can add up quickly, so it’s a good idea to use a bank with a large enough ATM network to serve your needs. The fees are static, so whether you withdraw $20 or $200, the amount charged will be the same.

Transaction Fees

You may be charged a small fee if you use your debit card with a 4-digit personal identification number (PIN), instead of your signature for credit and debit transactions.

Replacement Card Fees

Your bank may also charge you a replacement fee if your debit card is lost or stolen. It’s a one-time fee to replace your card and is usually only charged in these instances. If your debit card has expired, your bank typically issues a new card and will likely not charge you a replacement fee.

Overdraft or Insufficient Fund Fees

These fees are charged by your bank if you have spent more money than is actually in your bank account. If you overdraw your checking account, the bank may honor the payment instead of denying the transaction.

If you have overdraft protection, the bank will automatically move money from another account, such as a savings account, into your checking account to cover the costs.

If you do not have overdraft protection and the bank honors the payment, you’ll have a negative balance, and your bank will charge you a fee. The amount is usually between $30 to $35 and will be owed to the bank in addition to the negative balance due to a purchase.

Are debit cards secure to use?

Debit card and credit card fraud is a big business, with credit card companies and merchants losing almost $22 billion in 2015. That number is up almost $5 billion dollars from the previous year.

If you consider the total amount of loss back in 2000 was just $3 billion, it’s obvious that banks need to do something to stem this tide of fraudulent charges.

Credit and debit card companies started introducing EMV chips to their cards in 2015 to help prevent as much fraud as possible.

EMV stands for EuroPay, MasterCard, and Visa, which are the three companies that developed the technology. It’s now managed by EMVCo, a consortium including American Express, China Union Pay, Discover, as well as the founding companies.

You’ve probably noticed that at most retailers, you’re now asked to insert your card into a reader instead of swiping your debit or credit card. This is a level of security used to protect the bank, the retailer, and you from fraud associated with spoofed cards and other forms of debit and credit card fraud.

What if your debit card is lost or stolen?

Banks offer certain protections against the misuse of stolen debit cards, but it’s crucial that you act quickly. Call your bank to have your debit card deactivated or frozen as soon as you realize it’s missing.

The longer you wait, the more you’re personally liable for charges incurred on your debit card. If you report a card missing or stolen before any fraud occurs, you are not responsible for any amount charged to your checking account.

If you report it within two business days of it being stolen and misused, you’re only held liable for up to $50 in charges. Report it within 60 days, and that number jumps to $500. If you wait 60 days or more to report your debit card missing or stolen, you are legally liable for all deductions from your checking account.

How do you make online purchases with a debit card?

Purchases using your debit card aren’t just limited to a physical storefront. Making debit card purchases online can save you time and money, eliminating long lines and other headaches.

If you’re purchasing an item from a company that does not have a physical presence in your state, it’s likely that you don’t have to pay sales tax. It’s also easy to search for who has the item in inventory, who has the best price, and the fastest shipping.

But while purchasing items online can make shopping much easier, it can also make fraud much easier as well. Luckily, banks take precautions to ensure your safety here, too.

CVV Codes

Because the retailer cannot physically see the debit or credit card, card processors add an extra layer of protection with a CVV code. In addition to asking for your card number and expiration date, online sales forms also request your CVV code.

With a MasterCard or Visa, this three-digit code can be found on the back of your debit or credit card. As for American Express, it is a four-digit code found on the front of the card. The additional request of this code helps establish your identity and reduce fraud, especially when a card is not physically present.

Setting Up Automatic Payments with a Debit Card

With a recurring payment, sometimes called autopay, the cardholder authorizes periodic charges to their debit card, which are taken from the cardholder’s checking account. This recurring payment can be variable, such as monthly payments to utility companies for gas or electric.

They can also be static, like a monthly Netflix or Spotify subscription. Recurring payments can be a simple way to ensure you pay your bills on time each month. They help you avoid late fees if you’re forgetful and free up time for those with a lot on their plate.

That being said, it’s important to keep track of these payments for a few reasons. Staying on top of recurring payments helps you keep track of how much money you have in your bank account, especially if they are variable, like electric bills.

Canceling Automatic Payments

You may find services that you’re paying for but that you no longer use. Autopay is becoming more and more common, especially with streaming video and audio services. Netflix, Amazon Prime, HBO Now, Hulu, Spotify, Pandora, and Deezer are just a few examples of streaming services that you may subscribe to.

With all of these options, you may have even forgotten you signed up for some and are paying for a service that you no longer use.

If this is the case, it’s a good idea to call the vendor and ask them to cancel your subscription. If you haven’t been using the service for some time, they may even give you a refund for some of those charges. After all, it never hurts to ask.

If you have requested a vendor to cease charging you and they refuse, you can then go to your bank and tell them to reject the charges. You have 60 days to dispute it with your bank, so it’s best to stay on top of your statements and keep an eye out for any anomalies.

What is a prepaid debit card?

While most debit cards are connected to checking accounts, there is also another kind called a prepaid debit card. Typically issued by Visa or Mastercard, these debit cards are sometimes referred to as gift cards. Prepaid debit cards can be purchased at retailers for specific amounts of money and used just like a credit or debit card.

Prepaid debit cards can have some significant downsides. In most cases, a prepaid debit card can be used by anyone who possesses it. If you lose your debit card or it is stolen, there is little you can do to recoup your money.

Additionally, there are larger fees such as ATM fees and monthly fees. If you are going to use one, it’s a good idea to shop around and read the fine print. There are many options out there with a wide range of terms and conditions.

Bottom Line

Using a debit card instead of cash or checks can be convenient and safe compared to other methods. Still, it’s a good idea to stay watchful. Fraud associated with credit and debit cards is at an all-time high. Banks and financial institutions are fighting back, but ultimately, it’s up to you to use your debit cards wisely.

Lauren Ward
Meet the author

Lauren is a Crediful writer whose aim is to give readers the financial tools they need to reach their own goals in life. She has written on personal finance issues for over six years and holds a Bachelor's degree in Japanese from Georgetown University.