A debit card is a payment card that deducts money directly from a consumer’s checking account to pay for a purchase. Debit cards eliminate the need to carry cash or physical checks to make purchases. In addition, debit cards, also called check cards, offer the convenience of credit cards and many of the same consumer protections when issued by major payment processors like Visa or MasterCard.
Unlike credit cards, they do not allow the user to go into debt, except perhaps for small negative balances that might be incurred if the account holder has signed up for overdraft coverage. However, debit cards usually have daily purchase limits, meaning it may not be possible to make an especially large purchase with a debit card.
Debit cards serve a dual purpose: They allow the user to withdraw money from his or her checking account through an ATM or through the cash-back function many merchants offer at the point of sale. In addition they also allow the user to make purchases. ATM cards, by contrast, only allow the user to withdraw money from an ATM, while credit cards only allow purchases unless the credit card holder has a PIN-enabled cash advance feature (and the cash advance will incur interest, unlike withdrawing cash from a checking account).
Debit card purchases can usually be made with or without a personal identification number (PIN). If the card has a major payment processor’s logo, it can be run as a credit card, and the cardholder won’t need to take the risk of exposing their PIN number. The money will still come directly out of the cardholder’s checking account, and there won’t be any finance charges when the debit card is run as a credit card. Some debit cards also offer reward programs, similar to credit card reward programs, such as 1% back on all purchases.
Every transaction made with a debit or check card will appear on the account holder’s monthly statement, making it easy to keep track of purchases. Consumers are effectively making their purchases in cash – that is, with money they actually have, as opposed to money borrowed on credit – but unlike cash purchases, there’s no way to lose track of amounts spent on a debit card. And while lost or stolen cash is gone forever, a lost or stolen check card can be reported to the bank, which can deactivate the card, remove any fraudulent transactions from the cardholder’s account and issue a new card.