How does a Debit Card Work

Debit cards work through essentially the same computer network as the credit card system. The one huge notable exception is that unlike credit cards a debit card is not added to your credit balance of a Master Card or Visa account. The amount is removed like an electronic check from your checking account. In some cases, it may be deducted from another type of cash account. Paypal, for example, offers a debit card as an option for accessing funds stored in your account.

Your credit card hopefully has a sufficient ceiling to allow you to use it without worry. Most people use credit cards a few times per month and wait on the statement to pay it. Your debit card competes with the checks you write and automatic drafts for you checking account balance.

If you are not a very meticulous bookkeeper, it is easy to overdraft the average checking account with a debit card. You have to learn to treat each transaction like a check and record it. Even those $1.95 transactions can take a toll if you make half a dozen per day over the course of a week or month.

You need to be aware that debit transactions can clear much quicker than some checks. If you do the transaction at a local store in the morning, it may well clear that night. Checks almost always have a day or so of float. If you’re inclined to play with the float, be careful with that debit card or that $2 transaction might cost you $30.

Your bank deposit this afternoon after the cutoff for current day transactions won’t be applied to your funds available until tomorrow. So,banks often add a credit amount of $300-$1,000 to most customers’ accounts to give them room to spend money on their debit card without being declined.

The problem with this is that if you don’t watch your spending, you can be hundreds of dollars in the hole before you know it. It’s good if you needed funds and don’t mind eating the service fees. It’s bad if you did it by accident.