Linked to a transaction account, a debit card is a payment tool that allows you to spend your own money online and in stores, while also giving you the option of making withdrawals at the ATM, and to set up regular payments to cover outgoings such as bills. So, what should you look for in a debit card? And is a debit card a better option than a credit card?
We’ll answer all these questions and more in this intro to debit cards: your Debit Cards 101.
What is a debit card?
When you sign up for a transaction account with a bank or other financial provider, chances are, you will be given a debit card as well. Linked to your transaction account, this debit card offers easy access to your money, allowing you to make purchases when you’re out and about, and when you’re shopping online.
How does a debit card work?
When you use your debit card to make a payment, you are basically using your own money, just as you would be if you were to hand over cash. How does it work exactly? When the transaction is processed, the merchant contacts your bank, and the bank confirms the payment. When the merchant receives this confirmation, the transaction is complete.
You will usually be able to track your payments either using online banking or a banking app. Typically, the payment amount will be deducted from your account straight away, but you may find that payments made over the weekend or on public holidays will not be processed until the next business day.
Offering a flexible way to pay, debit cards allow you to pay for stuff both online and instore. When you are at the checkout, you can use contactless technology to tap-and-go for payments under $100, while payments over that amount will require a PIN. Your PIN will also be required to withdraw cash at the ATM. Debit cards also allow you to set up regular payments via direct debit.
Why should you use a debit card?
For most people, the main benefit of having a debit card is that they don’t have to carry around large sums of cash. With a debit card, you can cover purchases big and small, as long as you have sufficient funds in your account to cover them. Apart from not having to worry about change jangling around in your pocket, carrying a debit card can also be safer than carrying cash. After all, you can cancel a debit card if it’s stolen – you can’t cancel cash.
What’s the difference between a debit card and a credit card?
With a debit card, you can only spend your own money. Whatever is in your linked account is what you can spend. A credit card, on the other hand, offers access to credit up to a certain credit limit. This essentially allows you to borrow money from your credit card provider to buy stuff now and pay it back later.
Which is better?
When it comes to credit and debit cards, there is no right or wrong answer. While some people may prefer debit because they don’t deal well with credit, others prefer credit cards for the various advantages they offer. Not sure which one is right for you? Let’s take a look at the pros and cons of each.
- You only spend your own money, reducing the likelihood of you ending up in debt.
- Overdraft features are available for those who want some wiggle room with their spending.
- It’s easy to apply for a debit card.
- You can benefit from limited features, with some rewards on offer.
- You can often find debit cards with linked transaction accounts that charge no ongoing fees.
- If you tend to overspend, having a debit card can be less of a risk.
- Using a debit card online can pose more of a security risk, as it provides direct access to your own money, rather than your provider’s.
- You can earn rewards on your spending.
- You can take advantage of other features such as airport lounge access and flight upgrades.
- You can cover the cost of the things you want, to then pay them back later.
- You can use introductory offers to your advantage, such as bonus rewards points and 0% purchase offers.
- If used correctly, you can use your credit card to build your credit rating.
- If you are hiring a car or staying at a hotel, you may need to provide a credit card as security.
- Credit cards tend to cost more in fees.
- If you carry a balance, you will pay interest.
- You generally need to have good credit to apply.
What features can you get on a debit card?
Just like credit cards, debit cards can offer a range of features. However, you will usually find these features are not quite as extravagant as the ones you find on credit cards, as you are not paying a large annual fee for the privilege of using them. Here are some debit card features to look out for.
Rewards: Debit cards don’t earn rewards on the same scale as credit cards, but some do offer a way to earn something back on your spending. This can include cash back on tap-and-go purchases, and points-earning on your account balance.
Digital Wallet: If you’re looking for a more convenient way to pay, setting up a digital wallet using Apple Pay, Samsung Pay or Google Pay could be worth looking into. If you’re interested in syncing your card with your devices, make sure the debit card you choose allows for that.
Payment Wearables: Similar to a digital wallet, payment wearables allow you to leave your card at home. Examples of this include the Bankwest payment ring.
Visa & Mastercard Features: Both Visa and Mastercard offer a range of extras, allowing cardholders access to special deals, exclusive offers and pre-sale entertainment.
Security: Debit cards offer security in the form of anti-fraud monitoring and zero liability, helping to keep you and your money safe as you shop both online and out and about.
Contactless: Contactless payment technology comes as standard these days, but that doesn’t make it any less handy. With your card in hand, you can tap-and-go at the checkout, making the process of paying that much more efficient.
How much does it cost to keep a debit card?
While most credit cards come with an annual fee, debit cards – or at least, their linked transaction accounts – tend to come at a lower cost. While there are some debit cards that have no monthly fee, there are others that charge around $4-$6 per month. If you deposit a certain amount per month, your provider may waive the standard monthly fee.
Other fees to be aware of include overdraft fees, ATM withdrawal fees, foreign exchange fees and surcharges.
How do you choose the right debit card?
When comparing debit cards, consider the features mentioned above and look for a card that fits your needs. Look closely at the linked transaction account, keeping in mind the fees you might pay, and whether the account itself will suit your needs.