Debit Card Policies

A debit card is similar to a credit card, in that you can use it for various kinds of payments (live, over the phone, or via Internet) and store purchases. Crucial differences exist, however. A debit card is linked directly to a cash account, usually a bank account, from which funds are deducted immediately. No revolving debt is created and no interest is charged. Debit card use use has advantages and dangers associated with it.

Debit Cards and ATMs

Debit cards allow you to make purchases as well as cash withdrawals from automated teller machines (ATMs). The ATM, if it does not belong to a system used by your bank, will charge a fee for the transaction. In addition, your bank may levy a fee.

Cash Back

Some retailers will allow you to use the debit card for a purchase as well as a "cash-back" withdrawal of funds. A personal identification number associated with the card is required for this kind of transaction. No fee is associated with a cash-back transaction.

Pre-Paid Debit Cards

The pre-paid debit card is charged with money by the store that sells it to the consumer, and can be used for purchases at that store until the balance on the card runs to zero. Online prepaid debit cards are purchased and used exclusively for Internet transactions. These cards can also be used by a company to transfer money to employees, freelancers, and vendors.

Debit Cards and Checks

Debit cards are widely used in place of written checks for payments for goods and services. Whereas checks carried a "float" in which several days passed before the money was deducted from the account, debit cards withdraw the money immediately, which avoids the danger of a bounced check. In addition, personal information about the user does not appear on the debit card, as it does on the check.

Overlimit withdrawals

Most banks allow their clients to withdraw a limited amount of money over and above their account balance when using a debit card. A fee is charged for the overdraft, but the customer is compensated with convenience if funds are needed for an emergency. If a user is not aware of the account's overdrawn status, she may be charged a fee for each transaction, which can result in hundreds of dollars of fees owed to the bank.

Fraud

Debit cards are less secure against fraud than credit cards. Federal law limits liability for a fraudulent transaction with a credit card to $50; however, no legal limit is in place for liability for fraudulent use of the debit card. If the card number is stolen and used, the bank account can be reduced to zero, with little or no compensation offered by the bank. Timely notice to the bank of fraudulent use of your card can greatly limit the amount of your loss and increase the amount of the loss the card issuer will cover.