Bank Account Debit: What's Really Happening?

When your bank account is debited, money is taken out of the account. The opposite of a debit is a credit, in which case money is added to your account. Your account is debited in many instances. For example, if you set up a direct debit and money is automatically taken out of your account to pay a bill, when you write a check and it is cashed, and when you use a debit card, which enables you to take money from your bank account and use it to purchase goods and services.

Key Takeaways

  • A bank account is debited when a transaction is made, usually with a debit card, billpayer system, or a check.
  • When a debit card is swiped or processed for an online transaction, the first step is that the bank is notified electronically.
  • The next step in a debit card transaction is that the bank puts a hold on the account for the amount of the transaction.
  • The retailer then sends the transaction details to the bank, and after reviewing the details, the bank transfers the money to the retailer.

How a Debit Card Works

The first thing that happens when you use your debit card to make a purchase is that your bank is notified of the purchase electronically. This occurs instantaneously when you swipe your card or enter it on a website to make an online purchase. Data is also sent to the card-processing network, Visa or Mastercard, for example, which verifies the transaction data and checks that the debit card has not been reported lost or stolen.

The processor also confirms that funds are available in the cardholder’s account and whether the transaction has been approved.

The transmitted data include the card number, transaction amount, and date. The data will also include the merchant’s name and merchant category code, or MCC, plus any rewards program information.

Because a transaction generally takes 24 to 72 hours to complete, the bank puts a hold on your account for the amount of the transaction. This action prevents you from using the money for something else. Ideally, the hold lasts long enough to earmark the funds until the transaction is complete.

Next, the retailer from whom you made your purchase sends the details of the transaction through the network to your bank. Your bank reviews the details and, if everything is verified, electronically transfers the purchase price to the retailer, effectively removing those funds from your account. In banking parlance, the bank debits the purchase price from your account.

Each bank transaction is composed of a debit, which includes removing money from an account, and a credit, which adds money to the receiving account.

How a Check Works

When you write a check, the payee deposits the check to their bank, which sends it to a clearing unit such as a Federal Reserve Bank. The clearing unit then debits your bank’s account and credits the payee’s. Checks are deposited electronically using an app, or they are deposited by mail or in person.

How Automated Bill Payers Work

With automated debit transactions, you allow a creditor to deduct money from your checking or savings account on a regular basis. The payee has access to your bank account information and routing number, so it can execute the transaction. There is thus a risk in giving another party that information.

Also, if you do not monitor your account, you could become overdrawn and rack up overdraft fees. Another option is to pay bills yourself through a bill payer. That way, you maintain control over what amounts are taken out and when.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Chase. “Review the Details of Your Transaction.”

  2. IBM. “Verifying Payment Card Data.”

  3. Washington State Department of Financial Institutions. “Debit Cards Frequently Asked Questions.”

  4. NetSuite. “Point of Sale (POS) Defined: How It Works & Why It’s Important.”

  5. The Federal Reserve. “Check Products & Services.”

  6. Consumer Financial Protection Bureau. “You Have Protections When It comes to Automatic Debit Payments from Your Account.”