Debit cards traditionally run off transaction accounts, many loans, overdrafts and line of credit accounts now allow a debit card to run off them. Debit cards used to traditionally run off transaction accounts as they were originally seen by banks as a replacement for cheque books and a way to cut down on the frequency of visits to ATMs. These were benefits for transaction account holders and there was no reason to offer debit cards with anything other than transaction accounts.
Debit cards however are not like cheques. Cheques cost either the account holder or the bank money to process the cheque. Debit cards, as they are processed through the same system as credit cards are, are financed through merchant fees which a shop or service provider charge in order to be able to process the transaction.
This meant that the debit card is virtually self-financing. Unlike cheques the self-financing debit card means that it makes sense to have a debit card with any instant access account.
Mortgages were the first types of loans that started offering debit cards with their accounts, as some of the more flexible mortgages had for some time been offering cheque books with the mortgages. Other mortgages, the so called “all in one” mortgages offered debit cards as they advertised that as well as a mortgage they could also offer a transaction account.
Loans and overdraft accounts started offering debit cards with their accounts when borrowers got used to having debit cards with mortgage loans. This expanded as customer demand grew for debit cards with loans. Lines of credit, which are often secured against a residence, were also early adopters of debit cards as the point of this type of loan is that it is flexible and easy to access once it is agreed.
Debit cards work in the same way as they do for transaction accounts. If there is a sufficient amount of credit in a loan account or an overdraft then any transaction will be charged straight on to a bank account. This can be considerably cheaper than if a credit card were being used.
It is important to know what the credit limit is before the debit card is used. If a debit card transaction leads to the account going over the limit then this can lead to a penalty and higher interest.
