subject: Debit Cards: How Do They Function? [print this page] Debit cards are becoming more popular as they are frequently being used as a replacement for filled credit cards. These cards often come attached with a major credit card logo, allowing them to be used with a personal identification number (PIN) or charged like a credit card. The major difference between this type of debit card and a regular credit card is that the price for which you charged will be treated just like a check. Sometimes the total will be deducted automatically while others may take a few days to go through, where credit cards will bill you later.
There are ups and downs to using debit cards, and understanding the risks may help keep your finances out of trouble.
What exactly is a debit card? A debit card looks like a credit card, but it works like an electronic check. Once you swipe the card and enter your PIN, if prompted, the dollar amount charged will be subtracted from your checking account. Once the card is scanned, the bank will verify funds and approve the purchasing transaction. Your funds may not go straight to the store, but your account will place a hold on that amount until the transaction is complete. Most debit cards can also be used like an ATM. When you make your purchase, if you have entered your PIN number, you will be prompted with a question as to whether or not you would like a cash withdrawal. Having this option will save you from having to make a trip to an ATM or bank when you want cash in your hand.
Not many people carry a bulky checkbook around anymore. Most transactions at stores are now completed with debit cards instead of checks. It is simply easier and faster at the checkout than having to write a check and show ID. If you have money in your checking account, it is a way to pay for your purchases without having to pay interest on them like when a credit card is used. The con to using your debit card in this manner is that if you are not aware of your balance before you use it and there is not sufficient funding in your account, you will be charged a fee for overdrafts. Some banks charge a fee for using your debit card with the PIN. It is a fee for the transaction without having to sign your name. Some debit machines will charge you a fee for using your debit card if the card is not associated with the bank.
Read the disclosures and understand how your debit card works before you start using them. Understand how the card works and familiarize yourself with any fees that could possibly be charged to your account. These fees will be deducted from your account's balance along with the purchase. You will need to figure in those costs before your transactions are complete to ensure your balance will support the extra funding. The fees may be small in comparison, but being a dollar short could cost you $35 more in a bank overdraft fee.
