How a Debit Card Works

Debit Cards

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There are many different types of cards available, a debit card, an ATM card, and a credit card. It is important to understand the differences so that you can choose the correct card for your needs.

A debit card is a card that is linked to your checking account. You can use it anywhere that a credit card is accepted. It allows you to access your account at different merchants throughout town. You can also use it at an ATM. It will take the money directly out of your checking out. Debit cards are associated with one of the major credit card companies and will usually have a Visa or MasterCard logo on them. You will receive a PIN to allow you to use the card at the store or ATMs.

How a Debit Card Works

When you use your debit card, the merchant will place a hold on your account for the amount of money of your transaction. Your bank may show you the pending transactions on your account. These are the holds put in by the merchants. The merchants then complete the transaction by submitting their transactions and then the money is taken from your account and shows up in your cleared transactions. Some merchants may take longer to file the transactions, and you may have a transaction listed as pending for a few days.

If you use your debit card at a hotel or for a car rental, the company may put a larger hold on the account to cover extra costs that you may accrue. It is important to be aware of this so that you do not run into a situation in which your card may be declined because of the hold. Be sure to have additional money in your account if you use it for a hotel or a car rental. 

Spotting Debit Card Transactions on Your Statement

When you look at your statement, the transactions down with a debit card may show up as POS transactions, with the merchant listed on the account. If you see an ACH transaction, this means that the money was directly debited from your account and that you did not use your debit card to complete your transaction.

Understanding this can help you if you are trying to find out if someone accessed your account without your permission. It can also help you identify spending if something is not labeled correctly. For example, your local fast food restaurants may be doing business under another name. 

Debit Cards and Overdrawing Your Account

You can overdraw your account with a debit card. Some banks allow you to overdraw your account to a certain dollar amount and simply charge you fees for each transaction that they pay into the negative. Additionally, if you have checks clear later that night, you can find yourself overdrawn while using your debit card. It is important to keep a running balance on the account so that you know how much money you have available to you.

Some charges may drop off the hold before they clear your account. It makes the money available again, which means that you can overdraw your account while using a debit card. Additionally, a check may not have cleared, which allows you to overdraw. Tracking your purchases yourself on paper or with an app is the best way to protect your money.

Fees Associated With a Debit Card

When you use a debit card at an ATM, you may be responsible for ATM fees. Your bank may have fees associated with your debit card, and it is important to carefully read the rules around using the debit card. There may be a monthly service fee associated with having a debit card. Some banks may limit the number of debit transactions you have for free each month. Although as debit card use has become more common, these fees and restrictions are less common. You may consider switching account types or banks if there are fees related to your debit card, especially if you are limited to a low number of debit card transactions each month.

Precautions With a Debit Card

One of the biggest precautions you need to take with your debit card is to make sure that it or the information on it is not stolen. If your card is physically stolen, you need to call the bank immediately and cancel the card. Criminals might hack a website and steal the card information and then use it to make purchases online. Your bank may have sent you a new debit card at some point because there was a data breach at a merchant. If you find unauthorized transactions in your account, you need to call the bank immediately to find out what happened.

Another way that criminals are getting the information is through card skimming. The person can either swipe your card through the machine themselves (this happens at restaurants or other places where they take your card from you momentarily) or they can attach a skimmer to a machine where you use your card (like an ATM, vending machine, or RedBox). The skimmers are very small and blend in well. They can be difficult to spot. However, if one of these looks off to you, especially where you swipe the card, you should likely use a different ATM or vending machine. It is important to check your account regularly and watch out for unauthorized transactions, because the sooner you spot the problem, the easier it will be to resolve.