Understanding Debit Cards: A Comprehensive Guide

A debit card is a versatile financial tool linked to an account in the cardholder’s name, allowing users to make purchases or withdraw cash directly from their account. In this blog, we will explore how debit cards work, common fees associated with them, their role in building credit, how to obtain one, and the differences between debit and credit cards. If you have any mortgage service needs, don’t hesitate to call O1ne Mortgage at 213-732-3074. We are here to assist you!

How Do Debit Cards Work?

Debit cards provide direct access to the funds in a checking or money market account. They can be used in various ways, including:

• Making purchases online or in person
• Withdrawing money from your account
• Paying bills
• Transferring money to another bank account
• Sending money to friends and family via peer-to-peer payment services

Typically, debit cards come with a personal identification number (PIN) required for in-person purchases and ATM withdrawals. Prepaid debit cards function similarly but are linked to prepaid card accounts rather than checking or money market accounts. These cards allow access to money loaded onto them through direct deposit, bank transfer, mobile checks, cash loads, and more.

Common Debit Card Fees

While some banks do not charge fees for using debit cards, others may impose various fees. Here are some common ones to watch out for:

• Monthly maintenance fee: Some prepaid debit cards and checking accounts may charge a monthly fee, which can sometimes be waived with certain activities.
• ATM fee: Using ATMs outside your bank’s network may incur fees from both your financial institution and the ATM owner.
• Insufficient funds fee: If you make a transaction without enough funds in your account, your bank may decline the transaction and charge an insufficient funds fee.
• Overdraft fee: If your bank covers a transaction that exceeds your account balance, it may charge an overdraft fee.
• Foreign transaction fee: Using your debit card abroad may result in a foreign transaction fee, typically ranging from 1% to 3% of the purchase amount.
• Cash load fee: Some prepaid debit accounts and online-only checking accounts may charge a fee for loading cash onto your account at retail stores.

Can You Build Credit With a Debit Card?

Traditional debit cards, including prepaid cards, do not typically help build credit history because they only allow access to existing funds without borrowing. However, some newer debit cards offer credit-building features. For example, the Experian Smart Money™ Digital Checking Account & Debit Card can help build credit without debt by linking to Experian Boost®, which gives credit for eligible bill payments after three months of payments.

How to Get a Debit Card

To obtain a debit card, you generally need to open a checking or money market account. For prepaid debit cards, you apply directly for the prepaid account. You can usually open an account online, by phone, or in person at a local branch. Required information typically includes:

• Full name
• Social Security number or Individual Taxpayer Identification Number
• Date of birth
• Street address
• Email address
• Phone number
• Government-issued ID

Some banks may also require a minimum opening deposit. After opening the account, you will receive your debit card in the mail within a week or two. Follow the included instructions to activate the card and start using it.

How Debit Card Fraud Protection Works

If your debit card is stolen and used for unauthorized purchases, the Electronic Funds Transfer Act limits your liability based on when you report the loss:

• Before unauthorized charges are made: $0 liability
• Within two business days of learning about the loss or theft: $50 liability
• More than two business days but fewer than 60 calendar days after your statement is sent: $500 liability
• More than 60 calendar days after your statement is sent: Full amount taken from your account, and possibly more

Many banks offer zero-liability fraud protection even if you don’t report a stolen card before unauthorized use.

Debit Cards vs. Credit Cards

While debit and credit cards may look similar and allow various transactions, there are key differences:

Security

Federal law caps the maximum loss on unauthorized credit card purchases at $50, regardless of when you report it. Credit cards often offer zero-liability fraud protection, and unauthorized purchases use the credit card company’s money, not yours.

Credit Building

Credit cards are generally more effective in building credit history than debit cards. Using both a credit-building debit card and a credit card can maximize your credit-building potential.

Debt Potential

Credit cards allow spending beyond your bank account balance, which can be useful for large purchases but may lead to high-interest debt. Debit cards limit spending to available funds, reducing the risk of debt.

Eligibility Requirements

Opening a checking account typically does not require a credit check, while credit card issuers review your credit history. Insufficient income may also result in credit card application denial.

Benefits

Credit cards often offer rewards, intro bonuses, and travel and shopping benefits that debit cards may not provide. Using both types of cards can help you enjoy the best of both worlds.

Frequently Asked Questions

What Is an ATM Card?

An ATM card is a type of card that allows you to review your account balance and make withdrawals from an ATM, typically without the ability to make purchases.

Is It Better to Use Credit or Debit?

The choice between credit and debit depends on your situation and needs. Credit cards offer benefits if used responsibly, while debit cards help avoid debt. Using both can provide a balanced approach.

Compare Debit Cards to Find the Right One for You

When searching for a new bank account or debit card, compare options from multiple banks and providers. Consider fees, rewards, and other features to find the account that best meets your needs.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to assist you with the best mortgage solutions!