What is a Debit Card and How Does It Work?

Written by Kim PinnelliReviewed by Nathan Brown, CFP®Updated: 19th Apr 2022
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Debit cards aren’t credit cards, but they act like it. They provide convenience, but without the risk of going into debt or ruining your credit score.

Understanding how a debit card works and where it’s best used is important. Check out my guide on debit cards and their best use below.

What Is a Debit Card? Debit Card Definition

A debit card is issued by your bank and allows you to make purchases securely while drawing funds directly from your checking account.

You can use a debit card just about anywhere credit cards are accepted without the risk of excessive interest charges or putting yourself into debt.

How Does a Debit Card Work?

You can use a debit card at retail locations, restaurants, online, or anywhere else Visa or Mastercard is accepted.

You can also use your debit card at an ATM but stick to your banks’ ATM network to avoid excessive fees.

Most banks provide debit cards with their bank account, usually checking, but sometimes savings accounts too.

When you use your debit card, you either swipe or insert it (if it’s CHIP-enabled) and enter your PIN. If the transaction is approved, it puts a hold on the amount in your checking account, marking the funds as ‘pending’ until the transaction posts, usually within one or two business days.

How Do I Get a Debit Card?

Here is our step-by-step guidance on how to get a debit card.

#1. Open a Checking Account

To get a debit card, first, you’ll need a bank account. Unlike a credit card, debit cards are tied to your bank account.

When you receive your card, you’ll be prompted to set up a PIN so you can use the card to spend money and/or take money out of the ATM.

>> More: Explore the Best Checking Accounts

#2. Purchase a Prepaid Debit Card

If you don’t have a bank account, you can buy a prepaid debit card. It works the same as a debit card tied to a bank account, except you load the funds directly on the card.

It’s a great option for those who don’t qualify for a bank account. Many prepaid debit cards allow you to set up direct deposit of your funds right to the card, or you can electronically transfer funds from another account.

#3. Ask Your Bank if You Already Have an Account

You may already have an account at your bank that qualifies for a debit card. Ask your banker what accounts you have that may qualify.

What Is the Difference Between a Debit Card and a Credit Card?

Debit cards and credit cards look the same – they both may even say Visa or Mastercard. But there are major differences.

Credit cards are a loan. You make purchases and then owe the money back to the credit card company. You can make minimum payments or pay the balance in full (recommended).

If you don’t make your payments, it can hurt your credit score, as can overusing your credit card and getting yourself in over your head in debt.

Debit card purchases come directly out of your checking account. You can only spend the amount available in your account.

It’s not a loan – any purchase you make immediately debits your checking account, putting the funds in pending status until the transaction posts in a business day or two.

>> More: Credit Cards vs. Debit Cards

What Is the Difference Between a Prepaid Debit Card and a Debit Card?

A prepaid debit card isn’t tied to a bank account. You may only spend the funds you load on the account. Most prepaid debit cards offer many loading options, including direct deposit.

A debit card doesn’t need to be ‘loaded’ since it’s tied to your bank account. Your limit is the amount in your bank account, although many banks have daily and per transaction limits they set.

Is a Debit Card and ATM Card the Same?

Debit cards and ATM cards are both tied to your bank account, but they differ from there. You can use debit cards at retailers, restaurants, and online to make purchases. You can also use them at ATMs to withdraw cash from your account.

You can only use ATM cards at the ATM to withdraw cash from your bank account. You can’t use them to make purchases anywhere else.

Are Debit Cards Safe to Use?

Debit cards have less protection than credit cards, so use caution if you carry one. If you lose your debit card (or it’s stolen), you may be liable for the charges anyone else racks up.

Lately, some banks offer fraud protection, not making you liable for the charges, but always check with the bank.

Since debit cards are tied directly to your bank account, there is risk when you carry one.

Do Debit Cards Have Fees?

Yes, most debit cards have fees. While each bank differs, most banks charge fees for many different types of transactions. Always read the fine print before using your debit card.

>> More: Best Checking Accounts with No Overdraft Fees

Do Debit Cards Help You Build Credit?

This is a downside of debit cards. Even though you can use it as a credit card, they don’t help you build credit.

Banks don’t report debit cards to the credit bureaus – only credit cards get reported.

Debit Card Fees:

  • Out-of-Network ATM Fees: Banks usually belong to a network of ATMs, which means you can visit your bank’s ATM as well as ATMs at other ‘network’ banks. If you visit an ATM outside of the network, you’ll pay a fee for going outside the network, usually around $3 per transaction.
  • Overdraft Fees: Since debit cards are tied to your bank account, if you go over your balance, you spend money you don’t have. Most banks charge a fee for the initial overdraft, plus a daily penalty fee until you bring the account up to at least a $0 balance.
  • Monthly Fees: Many banks charge monthly fees. It may not be for the debit card directly, but if you don’t meet the minimum balance requirements or you exceed other transaction limits, you may pay a monthly maintenance fee.
  • Foreign Transaction Fees: If you use your card outside the US, you’ll likely pay a foreign transaction fee of 1% – 3% of the amount withdraw or charged.
  • Lost Card Fees: If you lose your card, many banks give the first replacement for fee, but any subsequent cards cost you.

Debit Cards we Like

#1. Chime

The Chime Spending account comes with a free Chime Visa debit card. There are no monthly fees or maintenance fees, and it works everywhere Visa is accepted.

There are out-of-network ATM fees, but that’s normal for most cards. Chime also rounds up any purchases you make to the nearest dollar, transferring the change to your savings account. Even though it’s spare change, every penny counts.

>> More: Full Chime Bank Review

#2. CIT Bank

The CIT Bank debit card is a Mastercard you can use anywhere Mastercard is accepted. They have a large network of ATMs, 24/7 access to your account, fraud alert texts when suspicious activity occurs, and easy to conduct withdrawals, deposits, and transfers.

>> More: Full CIT Bank Review

#3. Greenlight Debit Cards for Kids

You want to teach your kids about money early on, why not give them real-life experience with a debit card?

The Greenlight Debit Card for kids helps kids learn how to manage their money with the gentle guidance of parental controls. Easily transfer money to your kids’ accounts and monitor their activity all from one dashboard.

>> More: Full Greenlight Debit Card Review

Bottom Line: What Is a Debit Card? How Do Debit Cards Work?

Debit cards are a nice convenience. You don’t have to carry cash or checks, and they’re accepted just about anywhere.

Before you accept a debit card, understand the fees and know the implications of using it, so you don’t go overboard and think you’re ‘borrowing’ money rather than spending the money in your checking account.

Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.