How does a Debit Card Work

A debit card acts much the same way as a credit card but unlike a credit card it is secured with your own money. There is actually no credit involved.

There are 2 types of debit cards:

One that is linked directly to your checking account. Whenever you use it, the money is withdrawn from your account. The advantage of having this type of debit card over a stored value card is that you don’t have as many fees associated with it. The debit card acts like an electronic check. When you buy something with it the information is electronically transferred to your bank. Your bank then immediately deducts the amount from checking account. An then your bank electronically sends those funds to the merchant. The debit card has an advantage over a check since many more stores accept them. It is very hard to bounce a debit card. It has some of the advantages of a credit card. Debit cards are usually associated with major credit cards. They will share almost the same logo but the word Debit is usually located on the debit card. Where ever the major credit card is accepted usually the debit card will be accepted as well. You can even use a debit card for on-line purchases, get a rental car or a hotel room . The biggest disadvantage to having a debit card that is linked to your checking account is that if you don’t keep careful records; you can easily overdraw your account. The debit card generally also serves as your ATM card.

The other type of debit card is a stored value card. These cards can be bought in many stores and gas stations. You pay a fee to buy the card and then you add funds to it. Each purchase is then deducted from the amount that you have placed on the card. You can add funds whenever you need to. It has the same advantages as the other debit card. However these kind of cards have a lot of fees attached to them. They charge a maintenance fee; a fee when you add money to the card; an ATM fee and other miscellaneous charges. Generally people who can’t get regular credit cards or can’t open bank accounts use them. Most of them accept direct deposits from your employer. The one advantage the secured value card has over the checking-debit card is that you can’t overdraw them.