Debit Card

A debit card is the basic banking product made of plastic that is tied to the checking account at a credit institution. The balance of such a card is zero until the owner tops it up. A debit card can be replaced with cash and performs similar functions. At the moment, it is the most popular alternative to paper money and used to store personal funds of clients, to pay for purchases in the stores and supermarkets, to transfer money to someone, to get cash at an ATM or pay bills.

How a Debit Card works

A debit card works in real-time mode. When a client pays with a debit card, the money comes out of his checking account immediately. There is no bill to pay later. 

A debit transaction means an instant money transfer from the bank to the seller at the moment of an authorization with a PIN (personal identification number) in the process of making a purchase.  

A debit card can be used with or without a PIN (personal identification number). In most cases, withdrawing cash from an ATM requires a PIN, but sometimes buying goods and paying for services does not need any confirmation.

Some debit cards provide for an overdraft facility. An overdraft is a supply of money from a bank that cardholders can use. If you use an overdraft facility, your checking account will go negative by the amount you spend. The overdraft limit is calculated by the bank individually.

Pluses and minuses of using a Debit Card

Advantages:

1. Effective cash management.
2. Access to funds at any time (because of spending own money, not borrowed).
3. Transparency of all transactions.
4. Safe and secure storage of customer funds.
5. The possibility of earning income on the balance
6. An ability to set up auto payments.
7. Easy to get in a bank (in many cases online).
8. Minimum fees.

Disadvantages:

1. Daily/monthly limits of a card.
2. Weak card protection against fraud.
3. Overdraft fees.

Difference between Debit and credit cards

Despite the fact that these cards look almost the same way, they have significant differences in their usage. 

The first and the most important distinction between debit and credit cards is in whose money the holder uses. In other words, who exactly acts as the owner of financial resources. A debit card is attached to a current checking account, on which personal funds are located. As for a credit card, the client borrows money from a bank that issued this card. It allows the client to manage non-own finances belonging to the bank. Thus, it acts as a loan that a financial institution provides to its client. The money spent on a credit card must be reimbursed during the term of the agreement, otherwise interests can be charged. 

When the client uses a debit card, he cannot spend more than he has, this card does not allow the account holder to go into debt. The drawback of a debit card is that it has limits, which means that funds are limited with the actual amount of money in the account. 

At the same time, a debit card cannot help to build up a credit history, as credit card do. But banks usually offer reward programs for customer using their debit cards (Cash Back), for example, they return 1% of the purchases back which is an important advantage for using a debit card.

A debit card is the best option for making small purchases or getting cash, while a credit card allows buying anything you need and want at the moment, even a large purchase.