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How Do Debit Cards Work?

by / 0 Comments / May 27, 2015

As more and more people use debit cards, a natural question many have is “How do debit cards work?” A nationwide study conducted in 2011 by TSYS, a global payment processing company, found that people preferred using debit cards more than any other payment type, including cash, which was the second most preferred payment method. People prefer debit cards because they are more convenient to carry than a wad of cash or a big checkbook is. Debit card transactions are also fast. If you’ve ever been behind a check writer at a grocery store, you appreciate the quickness of the debit card swipe. It’s also safer to carry a debit card; cash is often stolen.

Accessing Cash

You can get cash by using a debit or a credit card, but they are very different transactions. When you want cash and you use a debit card, you are withdrawing money you already have in your bank account. But when you want cash through your credit card, called a cash advance, you are taking out a loan. You must pay back the loan, and you will typically pay a high interest rate for the transaction, making getting cash from your credit card an expensive option. It costs you nothing to withdraw cash from your own bank using a debit card.

Debit Card Fees

Sometimes fees are associated with debit cards when you use them.

  • You pay a fee when you withdraw cash with your debit card at an ATM that is not associated with your bank. According to a Bankrate survey it costs you an average of $2.60 every time you use an out-of-network ATM. Your bank might also charge you for using an out-of-network ATM — an average of $1.53. If that happens, you spend $4.13 every time you withdraw cash from an ATM that is not your bank’s.
  • There are two ways to use your debit card for purchases: you can use your debit card as a credit card or as a debit card. Using your PIN means you run the card as a debit card, and signing the receipt means you run the card as a credit card. Some banks charge a fee when you use the debit card for purchases when you enter your PIN instead of signing for the card.
  • If you make a purchase using your debit card for more than what you have in the account, you will be charged a fee if you opted to have overdraft protection. The bank, in that case, would cover your overage, but it would charge you a fee for doing so. The median charge is $34, and most overages are for less than $25, according to the Consumer Financial Protection Bureau

Daily Withdrawal Limits

You can withdraw only a limited amount of money each day from an ATM using a debit card. Each bank has different limits, and different customers could have different limits, too. The usual limit is no more than $1,000 a day. And, of course, you cannot withdraw more than what you have in the account. So now, you should have your question of how debit cards work answered.

About the Author

Laura Agadoni has a background in credit union marketing, and her articles appear in various financial publications such as The Houston Chronicle's small business section, The Motley Fool, RISE Blog, The Penny Hoarder, San Francisco Gate's real estate section, Zacks, Opposing Views, Arizona Central's small business section and The Nest's budgeting money section. www.lauraagadoni.com

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