How Debit Cards Work

Choosing to Use a Debit Card

There are several things to consider when choosing whether to use a debit card. Debit cards are best for small, run-of-the-mill purchases -- the box of doughnuts for the boys at work or the bottle of water from the corner store as you walk to the beach on a hot day. When you get into large items like computers, TVs and furniture, it's usually better to use a credit card. These purchases can put a big dent in your finances -- a dent you might not be able to afford in one big hit. Spread over several months of credit card payments, the cost of a large item becomes more manageable.

Debit cards are convenient for both the customer and the merchant. Checks can be annoying to write, cumbersome to deposit and slow to clear. Debit card transactions usually clear within 24 hours. Plus, business establishments accept debit cards more often than they accept checks, and businesses generally pay less to process debit card payments than they do to process credit card payments.

Something to keep in mind when using a debit card is that some businesses, such as hotels and gas stations, put a hold on your card to ensure that they are paid for their product or service. For example, gas stations will often put a $50 hold on your card and then charge you for the actual cost of the gas you pumped. As soon as they receive the money due them, they will lift the $50 hold. If you use a debit card on gas purchases, this $50 hold could influence the available balance in your checking account, affecting other purchases you might make before the hold is lifted.

If you choose to use a debit card, make sure you protect your card and account information. Keep your PIN safe; don't carry it around on a slip of paper tucked into your wallet. Memorize it. Also, don't make your PIN something obvious, a number that a thief could easily connect to other identifying information, such as your street number or a sequence of digits from your phone number. Pretty much anyone can get this identifying information, so don't make it easy for a thief.

As we discussed on the previous page, if your debit card is stolen, you may find it more difficult to get your money back than you would if your credit card were stolen. Under the Electronic Fund Transfer Act, as long as you report your card stolen within two days, you won't lose more than $50 of the money a thief draws from your account. If you don't report for up to 60 days, you could be liable for as much as $500. Beyond 60 days -- well, let's hope you have a good supply of money in another account. Luckily, Visa and MasterCard, as well as many banks, will not hold you liable for debit transactions you did not authorize.

If you'd like to know more about debit cards and related topics, follow the links below.

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More Great Links


  • AARP. "Understanding Debit Cards." (Accessed 5/16/08)
  • Borzekowski, Ron, Kiser, Elizabeth K., and Ahmed, Shaista. "Consumers' Use of Debit Cards: Patterns, Preferences, and Price Response." Federal Reserve Board (Washington, D.C., 2006) (Accessed 5/16/08)
  • FDIC. "The Debit Card Debate." Spring 2006. (Accessed 5/16/08)
  • Lazarony, Lucy. "The ins and outs of debit cards." 11/20/2006. (Accessed 5/16/08)
  • McBride, Greg. "Used right, debit cards can save money.", 10/4/07. (Accessed 5/16/08)
  • Yu, Roger. "Evacuees can get $2,000 per household from FEMA." USA Today, 9/7/05. (Accessed 5/18/08)