Debit Card Basics

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How does a debit card work?

A debit card,like a credit card, is a small plastic card that can be used as a method of payment. However, instead of drawing from a line of credit, a debit card automatically withdraws funds from an attached bank account; it combines the functions of ATM cards and checks. When you pay with a debit card, the money is immediately deducted from your checking account. There is no borrowing or repayment involved because you are simply accessing your own account and funds remotely. Some transactions (including cash-back transactions) will require you to enter your personal identification number (PIN) in order to authorize the transaction, while others allow a simple swipe. Many banks issue a combined ATM/debit card that looks just like a credit card and can be used wherever credit cards are accepted. But don't be mistaken—they do not work the same way.

 

Pros and cons of using a debit card
ProsCons
Payment is immediate, so you cannot possibly go into debtThere is no free borrowing period, in contrast to credit cards
You don’t have to carry a checkbook or show ID; many cards include a photo of youShould never be used to shop online due to a high risk of theft
Instant cash from ATMs and cash back options at some storesSome banks charge transaction fees for using debit
You don’t have to wonder if there’s enough money in your account; card can be set up to prevent overdraftsNo option to withhold payment in the event of a dispute with a merchant, in contrast to credit cards