What is a debit card?

Debit cards give you easy access to the money you currently have available in your linked checking account. They’re different from credit cards, which allow you to make purchases with loans offered by your financial institution. Debit cards offer consumers a good tool to manage their day-to-day spending, but offer less flexibility.

A debit card allows you to easily access your checking account for financial transactions. 

When you open a new checking account at a bank or credit union, you get a debit card for that account. The card is tied to that one specific checking account—you can’t use it to access a checking account at another bank and it doesn’t let you pull money from your savings account, even if your savings is at the same financial institution. 

Physically, a debit card is typically a piece of rectangular plastic, not unlike a credit card, with certain information, such as your name, expiration date and a magnetic strip. It may also have a chip in it, making it capable of more secure transactions.

How a debit card works

When you use a debit card, funds transfer instantly. 

If you spend $20 at your grocery store, $20 is deducted from your checking account. Debit cards work very much like spending cash, albeit without having to handle actual greenbacks. 

You’ll also enjoy the benefits of more consumer protections. 

Say a thief grabs your wallet and sprints away. Chances are, you’ll never see that cash again. 

But if someone steals your nabs your debit card, you’re not liable for fraudulent transactions, as long as you report the issue quickly. Under the Consumer Credit Protection Act, Regulation E limits Americans’ liability to only $50, if you report it within two days.

This protection includes purchases and cash withdrawals. 

“Often your debit card is used not only to spend money but to deposit or withdraw money using an ATM,” said Kelsa Dickey, financial coach and founder of Fiscal Fitness Phoenix. 

If you don’t report the fraud quickly, however, your liability increases, going up to $500 and even “unlimited,” after various time limits. 

Choosing credit on a debit card transaction

When you swipe your debit card, you’ll sometimes have the option to “choose credit.” So, are there blurred lines? Kind of. 

If you choose to process a debit card transaction as credit, you’re not borrowing money. You are postponing when the funds transfer. Rather than immediately transferring, the transaction typically happens in a day or two instead. The money still comes out of your checking account.

The upside is that you may be entitled to more card benefits, such as zero liability in the event of a fraudulent purchase. 

How to manage your debit card

It’s important to avoid overdrawing your account. There are many strategies you can employ, such as signing up for a budgeting app, or setting aside half an hour each week to review your spending line-by-line.

 Experts recommend checking your balance at least once a week, perhaps more often if you know you’re running low on funds. This way, you can nip any issues in the bud and adjust your spending if needed. 

“For those who have difficulty keeping an eye on their checking account and what they have available to spend, this can be helpful,” said Dickey.

Pros and cons of a debit card

Debit card pros

• Easier to manage your spending: Because money is immediately withdrawn from your bank account, it’s easier to track your spending and keep your budget on course. There may be less temptation to overspend since you can only spend what’s in your checking account.

• Low fees: Unlike credit cards, debit cards typically don’t have annual fees that can be in the hundreds of dollars. Some may have a nominal maintenance fee, such as $10 a month, but many banks and credit unions have no fees. Even for the ones that do, you’re typically able to have them waived if you receive a minimum amount of direct deposits each month or maintain a minimum balance.

• ATM access: It’s easy to access cash on the go with debit cards, as you can visit your closest ATM to withdraw funds. If you go to an in-network ATM, you typically won’t pay any fees.

Debit card cons

• Some fraud liability: If your debit card is lost or stolen, you could be responsible for paying back some or all of the fraudulent charges, depending on how promptly you file a dispute. Many credit cards offer better protection.

• Not flexible: Your spending limit is tied to your checking account, so you can only spend up to your available balance. Unlike credit cards, you must pay for purchases upfront with a debit card, which can be challenging if money is tight. 

• Doesn’t help build credit: Debit card activity typically  isn’t reported to the credit bureaus. Even if you use your debit card responsibly, it won’t boost your credit score.

Debit card vs. credit card

Though debit and credit cards look the same, they function completely differently. When you swipe a credit card, you are spending borrowed money that you must pay back at a later date. If you don’t pay your bill in full by the due date, you’ll likely owe interest. With debit, the funds are immediately taken from your available checking account balance. 

Using a debit card can provide better limits and help you control your budget because it’s much harder to spend money you don’t have. 

Debit card vs. prepaid card

A prepaid card, unlike a debit card, doesn’t imply a long-term relationship. 

You add cash to a prepaid card, and once you spend it, that’s it; there is no overdraft. Many prepaid cards allow you to reload it and none require that you open a checking or any other type of account. 

Another important difference becomes apparent should you lose the card. 

“Since debit cards are linked to a checking account or other deposit accounts in your name, you still have access to your money if you lose the card,” said Joshua Escalante Troesh, CFP and founder of the non-profit financial planning firm, Purposeful Strategic Partners. “Prepaid cards and gift cards don’t necessarily have this feature, so losing the card is a bigger problem. And there are fewer protections with prepaid cards in the case of fraud.”

Who should get a debit card?

Debit cards are financial tools to help you manage everyday spending from your checking account. They are helpful for people looking to get a handle on their financial situation and debt. 

“If people struggle with credit card debt, using a debit card can help since the money comes out of your checking account immediately rather than being added to a debt balance,” said Escalante Troesh. 

What to do if you lose your debit card

If you lose your debit card, acting fast can save you money.

“Contact your financial institution immediately. If fraud occurs on your card, the amount you are responsible for is directly tied to how long it takes you to report the card missing,” said Escalante Troesh. 

Under the Electronic Fund Transfer Act, your liability for fraudulent charges is limited.

You won’t owe anything if you report a lost or stolen debit card before any fraudulent purchases occur. If you alert your bank within two business days, you may be responsible for up to $50. After two days, however, your potential liability rockets up to $500. If you fail to report within 60 days, you could be on the hook for all fraudulent charges.

Frequently asked questions (FAQs)