A number of the larger securities brokerages now have a debit card with their accounts. A number of the larger banks also allow this. So it is a good idea to look at the advantages and disadvantages of a debit card for investment accounts.
Debit cards run off cash accounts that brokerages designate as a place to park cash when they are not being used for buying shares or other investments. Rather than having an investor keeping his money in another bank and then perhaps switching to another broker when they want to make their next trade, the broker encourages the investor to keep their money in a single bank account. This bank account usually operates like a savings account but has a bit of interest.
Debit cards were designed to look like credit cards and act like cheques. Unlike a credit card they do not add debt on to an existing account but instead they take money straight out of an existing bank account balance, whether the account is in debit or in credit.
When they were first introduced they were used mainly on transaction accounts. However debit cards largely pay for themselves as they charge a merchant fee to the shop keeper or service provider who is paid by debit card. This means that there is not a cost to the bank or the card holder for the transaction. This meant that a wider range of accounts started to have debit cards as long as they had the ability to instantly withdraw funds. These accounts included lines of credit, personal loans, home loans and savings accounts.
Some securities brokerages, including Commsec which is Australia’s largest brokerage and is linked to the Commonwealth Bank of Australia, have debit cards that are linked to the cash accounts. These cards cannot be charged against funds that are not present in the cash account, and this means that they can’t be used to sell shares because of insufficient funds and they cannot get an overdraft.
If the investor is not using a dedicated security brokerage, but is instead using a large bank that offers the ability to trade in investments then it is possible to link an existing debit card to the securities account. If there is any cash held in this securities account then there will be the ability to take this cash out on the debit card.
