A debit card looks and feels like a credit card, but works quite differently than a credit card.
A debit card can be used as a credit card in almost any location including gas stations, restaurants, and many other merchants, but differs from credit cards because it instantly withdraws money from your bank or investment account to pay for any purchases made with the card.
This method differs greatly from credit cards, which allow a consumer to make charges up until a set spending limit, at which time a statement will be sent out with the balance and available payment options.
With a debit card, purchases instantly deduct the necessary funds from the consumer’s account, and never allow the consumer to spend more than what they have available in the associated account.
Most banks these days offer debit cards, which may also be referred to as bank cards, check cards, or ATM cards, when you open a checking or savings account. These cards are tied to the cardholders’ bank account, and allow the consumer to withdraw money at ATMs or make purchases with merchants worldwide.
There are advantages and disadvantages to using a debit card.
The main advantage to using a debit card is that a consumer can only spend that they have in their bank account. This allows the consumer to avoid accruing any debt and paying any finance charges.
A disadvantage seen with some debit cards is that they don’t offer the same rights most credit card companies include in their contracts. Important measures such as buyer protection, fraud protection, hassle-free returns, error resolution, and more.
All things considered, a debit card is a useful addition to your financial profile, and should be used in place of credit where applicable. It’s wise to carry a debit card in case you need cash, or if a merchant doesn’t accept credit, which is the case at certain low-cost gas stations and other institutions.
It’s also wise to back up a debit card with a credit card issued by the same bank. The credit card can act as overdraft protection in an instance when you spend more than what’s available in your bank account. It’s usually free, and offered by most banks as a way to avoid unnecessary fees that arise when you’re overdrawn.
Also keep in mind that your debit card likely won’t be reported to the credit bureaus, so you won’t be successfully building your credit history unless you secure a line of credit found with a typical credit card.
