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Banking

What Is a Debit Card?

Imagine if you had to lug around your entire life savings in a bag or a shoebox wherever you went so you could buy the things you need. That would get old really fast (not to mention heavy!).

Thankfully, we have banks—places that can hold all your money for you and get the cash you need when you need it (so you don’t have to risk getting a hernia). And technology has definitely made banking easier, especially when it comes to getting and paying for things with cash. First, it was automated teller machines (ATMs). Then, it was debit cards (cue the trumpets!).

Noncash payments in America are gaining ground in the marketplace every year. In fact, 57% of all payments were made by card in 2021.1 And 29% of all card payments in 2021 were made with traditional debit cards.2 So, chances are, you already use your debit card on a regular basis. But what even is a debit card, and how does it work? Follow along, and we’ll give you all the info.

What Is a Debit Card?

A debit card is a form of payment that takes money directly from your checking account when making a purchase. While this piece of plastic might look like a credit card, a debit card acts exactly like cash when you make a purchase—meaning you don’t rack up debt. And once you’re out of funds, that’s it.

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Using a debit card is just a more convenient way to buy things than carrying a lot of cash or even writing a check (remember those?). And since a debit card is linked directly to your bank account, it's an easy way to make purchases without going into any debt—or any more debt.

How to Get a Debit Card

Your bank will usually give you a debit card when you open a checking account with them. So, it’s time to work through those trust issues, let go of the shoebox, and give the bank your money for safekeeping. It’ll be okay—trust us.

Most banks will mail out your new debit card a few days after you open an account. Others can make your debit card right there in the local branch (if your bank has physical branches).

How Does a Debit Card Work?

A debit card pays retailers with money from your checking account, just like when you write a check (only the money is taken out almost immediately). It’s why debit cards are also commonly called “check cards.”

Most merchants have card readers that capture the payment information from your debit card through the magnetic stripe on the back of the card or the fancy chip on the front of the card. Some debit cards are extra fancy and completely contactless (translation: you only have to wave the card near the reader!).

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

Using Your PIN

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

Making a Signature Transaction

A signature transaction (also known as credit) is when you run your debit card and the card reader doesn’t require a PIN to process. Think of when you go to a restaurant and give the server your card when you’re ready to leave. He usually doesn’t come back with a PIN pad. It’s a slip of paper for you to sign your name on (and write in a big tip). This signature is used as proof of your identity instead of a PIN, which is why they’re called signature transactions.

Keep in mind that even though they’re called signature transactions, these purchases don’t always require a signature. Sometimes, it’s as simple as pushing a button that says “credit” on the card reader. Other times, you might be asked to put in your ZIP code as proof. But they’re all considered signature transactions.

When you run your debit card purchases as a signature or credit, your purchase isn’t as immediate as a debit transaction. And 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 or 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.

Whether you use your PIN or run the purchase as credit, the money is withdrawn from your account, which means you’re spending real money. It also means there’s no interest, late fees, over-the-limit fees or annual fees that you often see when using a credit card.

Do Debit Cards Charge Fees?

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

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

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

Account Maintenance Fees

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. This means you have to keep a certain amount of money in your account at any given time or they might charge you a fee. In addition to the minimum balance, some banks might want you to make a certain number of transactions, use direct deposit, or keep your balance over a specific dollar amount to avoid these fees.

This is where you’ll want to pay attention to the bank’s rules, rates and fees—and decide which account suits your needs before you sign up.

ATM Fees

Have you ever needed cash in a hurry? 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 great, right? Sure—until you realize you got charged your right arm just to use the machine. Ouch!

Most ATMs charge a fee—especially if you go to a bank ATM and you’re not a regular customer. And if you’re using an ATM out of the country, you’d better believe there’s a pretty hefty fee coming your way. Make sure to check with your bank before you hit up any out-of-network or out-of-country machines for quick cash.

Transaction Fees

When you use your PIN, some banks charge you a transaction fee. Again, 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 (detecting a theme yet?).

When you run your debit card as credit, those fees go to the retailer instead. And another plus: You get to skip that PIN, which helps protect you from anyone wanting to swipe your PIN and use it to hack your account.

What to Do if Your Debit Card Is Stolen

Identity theft is no joking matter, and a debit card can become a prime target for identity thieves pretty easily. They can either steal the card itself or get the number off your card. That’s why it’s so important to monitor your account regularly, keep your PIN a secret, and make sure you hold on tight to your card.

But what happens if a thief does get a hold of your card or PIN number? Stop. Take a deep breath. Here are the next steps you should take:

Don’t Panic

If you think your card was lost or stolen, keep calm. Some debit cards can be “locked” (meaning you can stop the card from working) 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 with a new 16-digit number on the front.

Tell Your Bank ASAP

Report your lost or stolen card 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 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.

However, you need to make sure you report it quickly—like within hours (or minutes)—or you are liable for the fraudulent charges to your account by law. If you tell the bank within two business days, you’re liable for only $50. After two business days, it’s $500. And then after 60 days, you’re on the hook for all the charges!3 So don’t be lazy about it and tell the bank immediately.

It’s also important to keep good records of all the communication between you and the bank during this step—just in case you end up in some kind of argument with the bank, the merchant or both.

Monitor Your Account Activity

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 and fraud protections 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.

Debit vs. Other Payment Options

Cash is always the way to go over any kind of debt-based payment system. And you can use either the actual green stuff or a debit card. Both work the same way: Not only are you choosing to pay for your own purchases (like an adult), but you’re also saying heck no to the toxic cycle of debt in your life.

Here are a few of the main differences between a debit card and other payment options out there:

Debit Card vs. Credit Card

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 can’t.

Seriously. 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.

Debit Card vs. Prepaid Debit Card

If you’ve ever had a birthday, you might have 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!

A prepaid debit card works like a traditional debit card in that you can’t spend more than you have. The only difference is where the money comes from. With a prepaid card, money is loaded onto the card when the person buys it. So there’s no chance of overspending.

Debit Card vs. ATM 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 can’t be used to make purchases like your traditional debit card, because they aren’t backed by a payment processing company like Visa or Mastercard (that’s why ATM cards don’t have those logos on them).

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 using their cards to spend more. 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 (toasters used to be a popular giveaway). Others offer rewards for the number of transactions you make. But don’t worry—these are often 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.

The Benefits of Using a Debit Card

The benefits of using a debit card are endless. First, remember that spending money is behavior based. 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 real money leaving your pocket (or in this case, your bank account).

The easier it is to make a purchase, the more you spend. That’s why it’s important to create 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 you have to spend in the budget), you’ll spend more carefully.

Here are 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 (had to sneak that in one more time).
  • You never have to worry about going into debt.

We think debit cards are pretty awesome. That’s why we’re building our own: Gazelle. But it’s more than just a debit card. Gazelle is a new banking experience from Ramsey Solutions—a debit card that helps you spend and save the Ramsey way so you can win with your money.

Gazelle gives you all the awesomeness of a debit card without all those annoying fine-print things. That means no overdrafts (or overdraft fees), no monthly account fees, and over 30,000 fee-free ATMs. And did we mention there are cash-back benefits?

If you’d like to become one of the first beta users, sign up today!

Banking services provided by Pathward, N.A., member FDIC.

No ATM owner surcharge or ATM Cash Withdrawal Fees for domestic ATM withdrawals at MoneyPass ATMs (”in-network ATMs”). Visit the Gazelle Mobile app for a list of in-network ATMs. All other ATMs may apply an owner’s surcharge fee in addition to the ATM Cash Withdrawal Fee disclosed in your Deposit Account Agreement.

Netspend Payback Rewards is an optional program. Reward offers are based on individual shopping habits. Cash back rewards are credited to your Account and are not available in the form of a check or other direct payment method. See the program FAQs and Terms and Conditions in the Gazelle app for additional details about how and when you get rewarded. Program sponsor: Netspend Corporation. Pathward, N.A., and Mastercard are not affiliated in any way with this program and do not endorse or sponsor this program.

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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