Debit Card Basics
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
|Payment is immediate, so you cannot possibly go into debt||There 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 you||Should never be used to shop online due to a high risk of theft|
|Instant cash from ATMs and cash back options at some stores||Some 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 overdrafts||No option to withhold payment in the event of a dispute with a merchant, in contrast to credit cards|
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