Today’s consumers have many payment options when it comes to compensating for goods and services. Every day, transactions are conducted using cash, credit cards, checks, money orders, online payment services and one of the most popular payment methods, debit cards. CreditCards.com cited a Federal Reserve Payments study that showed that more than 47 billion people use debit cards, and that the frequency of debit card use and the annual amount of money people are spending using debit cards are increasing.
What is a debit card and how does it work?
A debit card links to your checking account. It looks like a credit card and can be used just about anywhere a credit card is accepted. You swipe or insert the debit card at the point-of-sale machine, punch in your personal identification number (PIN) and in just seconds the transaction is complete. The amount of your payment is electronically transferred out of your checking account to pay for the transaction. This will appear as a debit to your account.
A debit card can also be used as an ATM card which allows you to immediately withdraw cash from an ATM machine. In addition, some merchants will allow you to request cash back with a purchase. Just like any other debit card transaction, the amount withdrawn will be electronically deducted from your checking account.
How does it differ from a credit card?
Since a debit card withdraws money from your checking account, you are using money you already have. A standard credit card is, in essence, a line of credit. When you use a credit card you are borrowing the money you spend and will have to pay it back. If you do not pay it back within the next billing cycle, in most cases, you will be charged interest.
Recent survey statistics from CreditCards.com show that debit cards were the preferred form of payment for “smaller, everyday transactions at supermarkets, gas stations and convenience stores, while credit was the choice for more expensive purchases, including those at department stores and restaurants, and for travel reservations.”1
Benefits of debit cards
There are several benefits to using debit cards:
Disadvantages of debit cards
While debit cards have their advantages, there are some disadvantages to keep in mind:
Debit cards can be a smart option
Used wisely, a debit card can be a smart payment option for many everyday transactions. Select Omni Financial offices offer customers the opportunity to receive their funds on a prepaid debit card. This type of card is not linked to a checking account, but is pre-loaded with the funds of the military loan. Learn more about the Money Network Prepaid Debit Card here.
This material has been prepared for informational purposes only.