Understanding Debit Cards
A debit card is a plastic card which provides a payment method that is similar to cash but as convenient as credit for making purchases. Physically the card is like a credit card, but it functions more like writing a check because the funds are withdrawn directly from the cardholder’s bank account. These cards are sometimes referred to as check cards for this reason.
When you use a debit card, the card will be swiped through a card reader or inserted into a chip reader and the merchant usually enters the amount of the transaction. You are then usually required to enter your account and/or PIN. There may be a short delay while the terminal contacts the computer network over a phone line or mobile connection to verify that the funds are available in your account and authorize the transaction.
Some debit cards are multipurpose, acting as an ATM card for withdrawing cash as well. Merchants can also offer facilities where you can withdraw cash along with your purchase. The use of debit cards has become far more common than checks, and in some instances even cash transactions. Like credit cards, debit cards can also be used for telephone and Internet purchases.
You may find that the best type of debit card for you is one that requires a signature. With these cards, you generally are able to avoid transaction fees, which can be as much as 10 cents to $2 whenever you use your PIN. There are often no fees for signature transactions. In addition, some of the signature debit cards will offer rewards in the form of points, but be aware that you have to enroll specially in these programs and generally pay an annual fee.
There are actually two different ways that debit card transactions are processed. Online debit, also known as PIN debit, is what is most often associated with debit card use. Online debit cards require electronic authorization for every transaction and the debits are reflected in the your account immediately. These transactions usually require that you enter your the personal identification number, much like automatic teller machine, or ATM cards. Overall, the online debit card is generally viewed as safer than the offline debit card because of its more secure authentication system and little or no time between when the transaction is entered by you and actually completed by your bank.
Offline debit, also known as signature debit, is often thought of and treated like a credit transaction, even though your bank account is still debited and no real credit is involved.
Offline debit cards usually have the logos of one of the major credit cards and are used like a credit card. However, this type of debit card may have a daily limit as well as a maximum limit equal to the amount currently deposited in the account from which it draws funds. Offline debit cards can run the same risk of being used with a forged signature as regular credit card because users are rarely required to present identification.
Offline debit transactions are usually referred to at point of sale as "credit" transactions even though no credit is actually involved. This is because they are processed through the Visa or MasterCard networks in the exact same manner as actual credit card transactions. Since they are handled like any other Visa or MasterCard, offline debit cards are also accepted worldwide at virtually all merchants that accept those credit cards.
No matter which type of card you choose to use to make purchases, the key is to understand how it works and plan accordingly.