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What Is a Debit Card?

Unless you’ve been living underground, you’ve probably heard of the phrase “cash is king.” And if you’ve ever used cash to make a purchase, then you know it’s true. Cash is king, but if you haven’t noticed, you can’t really use cash for online purchases these days. That’s when having a debit card comes in handy—for all of those purchases you need (and even the ones you don’t). Yup, we’re looking at you, Amazon Prime.

Noncash payments in America continue to increase. In fact, by 2018, more than 75% of payments were made by card.1 Chances are, you already use your debit card on a regular basis. But if you’re in school and don’t have money of your own, or you’ve been using that buried shoebox in your backyard as a bank account, then this is for you.

What Is a Debit Card?

A debit card is a little plastic card that allows you to make purchases using your own hard-earned money. In fact, a debit card is the perfect mix between a credit card and cold, hard cash. But don’t be fooled. While it looks like a credit card, it acts exactly like cash when you make a purchase—meaning the money comes directly out of your bank’s checking account. And once you’re out of funds, you’re out of luck.

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We get it—using a card to pay for something is way more convenient than carrying cash or even writing a check. In fact, more than 55% of all card payments in 2018 were made with traditional debit cards.2 Why? Because it’s easier to track your purchases and stick to the budget.

How Does a Debit Card Work?

Fun fact: A debit card is also commonly known as a check card. That’s because it pays retailers with money from your bank account, just like when you write a check (only the transaction is placed immediately and not when the check is cashed). And since a debit card is directly linked to your bank account, it's an easy way to make purchases without going into any debt—or any more debt.

You can use your debit card in two different ways when you make a purchase:

Using Your PIN Number

When you swipe or insert your card, you can use your (top-secret) PIN number to run your purchase as a debit transaction. This PIN number is a four-digit code (for your eyes only) that runs purchases electronically through your bank account. The purchases you make with your PIN number are immediately deducted from your checking account. Make sure to check with your bank to see if they’ll charge you a fee for using your PIN for purchases.

Running Your Purchase as Credit

When you run your debit card purchases as “credit,” your purchase isn’t as immediate as a debit transaction. Running your card as credit gives you the same protections offered by Visa or Mastercard. But don’t get mixed up. While it’s called a “credit” transaction, it’s still your hard-earned money. It’s just run through a big-card network like Visa and Mastercard and will often take a few days to go through. If you see a pending transaction on your account, you’ve probably used your card as credit.

When you use a debit card, the money is withdrawn from your account, which means you’re spending your own, hard-earned money. It also means there’s no interest, late fees, over-the-limit fees or annual fees you often see when using a credit card. But that’s not to say your specific bank doesn’t charge fees when using your debit card.

Do Debit Cards Charge Fees?

Not all debit cards are created equal. Yup—you read that right. Debit card fees all depend on which bank you use and the services they offer when you sign up for your checking account.

But with most Americans choosing to pay with plastic instead of cash, many banks have decided to ditch those silly fees! But when you go to open a new checking account, you’ll want to read the fine print just to make sure you know what you’re getting yourself into.

Here are a few types of common fees you might see when you’re out and about using your debit card:

Account Maintenance Fees

Paying account maintenance fees feels a lot like getting detention from the hall monitor in school. When you sign up for your debit card, most banks have a minimum balance requirement they want you to meet when you bank with them. Some want you to make a certain amount of transactions, use direct deposit, or keep your balance over a specific dollar amount. This is where you’ll want to pay attention to the rates and fees and decide which account suits your needs—before you sign up.

ATM Fees

Have you ever needed cash in a hurry? You’re not alone. We get it, sometimes you need to leave an unexpected tip or buy those tasty tacos at the cash-only food truck outside. In those situations, there’s only one option: run to the nearest ATM. Sounds innocent enough, right? Sure—until you realize you just got charged your right arm just to use the machine.

Sound familiar? We thought so. Most ATMs charge a fee if you’re not using a machine in the same network as your bank. Bummer. And if you’re using an ATM out of the country, you better believe there will be a pretty hefty fee coming your way. Make sure to check with your bank before you hit up any out-of-network machines for quick cash.

Transaction Fees

Remember when we talked about running your card as debit or credit? When you use your PIN number, some banks charge you a transaction fee. You’ll have to check the fine print for the exact amount, but make sure you know what you’re getting yourself into before you use it.

Purchases made with a debit card (as credit) charges the fee to the retailer instead. This allows you to skip that PIN number . . . which gives you more protection from anyone wanting to swipe your PIN number and use it against you.

Do Debit Cards Offer Rewards?

When you think of cash back and rewards points, you often think of the perks credit card companies offer to lure you into spending more and using their cards. You don’t often see banks offering those same types of rewards for using your debit card. But that doesn’t mean it doesn’t happen.

Some banks offer rewards just for opening a checking account with them, and others offer rewards for the amount of transactions you make. But don’t worry—these are often very different from credit card rewards programs that try to rope you in so you’ll spend even more. Remember, with a debit card, you can only spend what you have. Any “reward” on top of that is just icing on the cake!

What to Do If Your Debit Card Is Stolen

Identity theft is no joking matter. If you think your card is lost or stolen, you’ve got to act quickly. Here are your next steps:

1. Don’t panic.

If you think your card was lost or stolen, keep calm. Some debit cards can be “locked” from an app on your phone. When in doubt, lock it, call your bank, and freeze your transactions until you can get a replacement card—and a new number.

2. Tell your bank as soon as possible.

Report your card lost or stolen as soon as you can and start monitoring your account for any out-of-the-norm purchases. The longer you wait to contact your bank, the more money you might end up losing.

If you report your card as lost or stolen before anyone buys themselves a new couch in your name, you won’t have anything to worry about when it’s time to get your money back. And don’t worry. Once you report it, you’re no longer responsible for any purchases made in your name.

3. Monitor your account activity.

Just keep your eyes open for purchases from places you’ve never been to before in amounts you wouldn’t normally spend—whether that’s $2 or $2,000.

Many banks often have special alerts in place, so when an odd transaction (like a steak dinner and a $500 bail bond purchase) comes through on your debit card, they can contact you to see if it really was you.

Remember: If you skip your PIN entry when you make a purchase, not only are you backed by the card protections of Visa or Mastercard, but you’re also keeping your number safe from prying eyes. So when you can, always run your purchases as credit.

Debit vs Other Payment Options

A debit card is the way to go. Not only are you choosing to pay for your own purchases like an adult, but you’re also saying no to the toxic cycle of debt in your life. Here’s a few of the main differences between a debit card and other payment options out there:

Debit Cards vs Credit Cards

“You can’t use a credit card like a debit card. It doesn’t come directly out of your checking account. A credit card sends you a bill at the end of the month, and then you pay the bill.” — Dave Ramsey

The biggest difference in using a debit card versus a credit card is that it’s your money. If you have the money, you can spend the money. If you don’t, you’re out of luck (and in need of another job).

And let’s be real: We all have enough bills. Why would we want to spend money we don’t have on things we probably don’t need, just to pay it back later . . . when we still don’t have the money? If you don’t have the money now, chances are you won’t have the money later.

If you’re not careful, you’ll find yourself knee-deep in debt (and regret) as you watch your interest build every single month. The consequences of a few poor decisions with credit cards will end up leaving a legacy you never wanted—or expected.

Prepaid Debit Card vs Traditional Debit Card

If you’ve ever had a birthday (and most everyone has), you’ve probably been gifted a Visa or Mastercard gift card. These things are pretty great. Not only is it like your grandma stuffing cash in your pocket—it’s “cash” you can spend online!

With a traditional debit card, the money is taken from your checking account with each swipe. In order to keep your account in order, you have to track your spending so you don’t overdraft and get charged for asking the bank to come to your rescue.

A prepaid debit card works like a traditional debit card in that you can’t spend more than what you have. The only difference is where the money comes from. With a prepaid card, money is loaded onto the card. And just like the envelope system, when it’s gone, it’s gone—until you refill it. There’s no chance of overspending. Think of it as a fancy gift card!

ATM Card vs Debit Card

The ATM card is like the flip phone version of the debit card. It doesn’t have a lot of bells and whistles, but it gets the job done. ATM cards are used at your local bank or ATM to withdraw cash, make deposits, or transfer money between accounts.

Unlike a debit card, ATM cards can only be used to make simple transactions at your local bank and, as the name suggests, the ATM machine. These cards cannot be used to make purchases like your traditional debit card, as they aren’t backed by a payment processing company like Visa or Mastercard.

The easiest way to tell between an ATM card and a debit card is the card itself. Traditional debit cards have a Visa or Mastercard symbol on the bottom left corner of the card. If you see that symbol, you’re dealing with a traditional debit card.

The Benefits of Using a Debit Card

The benefits of using a debit card are endless. First, let us remind you that spending money is behavior-based. Remember—cash is king! When you feel the pain of your money leaving your hand, you’ll spend a lot less. And while a debit card isn’t exactly cash, it’s as close as it gets because it’s still money leaving your pocket (or bank account).

The easier it is to make a purchase, the more you spend (ahem—we’re still looking at you, Amazon Prime). That’s why it’s important to make a plan for your money by making a zero-based budget every single month—before the month begins. When you know how much money you have in the bank (and how much in the budget to spend), you’ll spend more carefully.

Here’s a few benefits to using your debit card around town:

  • You can easily stick to a budget.
  • It’s much easier to track any money spent through online banking.
  • It’s your hard-earned money.
  • You never have to worry about going into debt.
  • You’re in charge of your own spending habits.

Here's one more way to make all those things easier: Check out Ramsey+. This membership gives you access to our bestselling online classes on budgeting, paying off debt, and even your money tendencies—plus the tools you need to take true control of your money. For real. For good. Try it today in a Ramsey+ free trial

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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