Debit Cards – The Benefits and Drawbacks

Debit Cards – The Benefits and Drawbacks

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. 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  Just like any other debit card transaction, the amount withdrawn will be electronically deducted from your checking account.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 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: 

  • Avoid debt – The debit card helps you avoid debt because you are can only spend what you have in your checking account.  It can help you be a more disciplined spender.  
  • Safety – If you have a debit card, you don’t have to carry around a lot of cash that could be lost or stolen.  
  • Convenience – While you will always have a need to carry some cash, debit cards are widely accepted. They can be used for in-person and online transactions and to withdraw money from an ATM.  
  • Easy to get & free – If you open a checking account, your bank or credit union will usually give you a free debit card.  There are also no annual fees.  

Disadvantages of debit cards 

While debit cards have their advantages, there are some disadvantages to keep in mind: 

  • ATM fees – The convenience of a debit card often comes with a price. If you use an ATM that is not in your bank’s network, you will pay a fee, and often two fees. There is usually a fee from the ATM’s bank itself, as well as your own bank.  Fees typically range from $2 to $3 per transaction.  
  • Overdraft fees – When using your debit card, you need to keep careful track of your checking account balance.  If you use your debit card and do not have enough money in your account to cover your purchase, you could be stuck with one of two fees:  If you have overdraft protection from your bank, your transaction will be processed, but you will be charged an overdraft fee.  If you do not have overdraft protection, you will be saddled with a non-sufficient funds fee and your transaction will be declined.  
  • Less protection than credit cards – If someone steals your debit card or even just the debit card number, expiration date and security code, they have direct access to the money in your bank account.  While the Fair Credit Billing Act (FCBA) and the Electronic Fund Transfer Act (EFTA) offer some protection if your card is lost or stolen, it is important to understand your liabilities and the steps you need to take minimize your losses.   To learn more about what to do if your debit card is lost or stolen, visit the Federal Trade Commission website 
  • Disputing charges can be a hassle –  While it is relatively easy to dispute a credit card charge, banks make it a little more difficult to challenge debit card transactions. Every bank has its own policy for how to manage disputes.  Also, since a debit card takes money straight from your checking account, if you have dispute about a transaction, the funds won’t be available to you while resolve the problem.  The merchant will already have the money.  

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. 

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