Debit Card
These are often confused with credit cards, but they behave differently. Basically, many bank accounts (or other accounts where someone holds money) offer debit cards as a way to get money out of the account. When you purchase something with a debit card, the process looks and feels similar to using a credit card. You swipe your card and, instead of signing your name, you sometimes have to enter your PIN code. And from then on, the item you purchased is yours.
Except what happens behind the scenes is different from credit. With a debit card, the amount of your transaction is deducted from your bank account. So if you buy something for $45 and you used you debit card, pretty soon after your transaction at the cashier or checkout (again, real or virtual), your account is reduced, or debited, $45.
This is handy because you don’t have to carry around cash. And, you aren’t charged interest because you’re not taking a loan as with a credit card.
But, though debit cards can be a great tool, there are two main problems with them, problems that aren’t often talked about. First, there are a lot of fees that can arise that you might not know about (banks often don’t seem to go out of their way to tell you about the fees they charge you). For example, each time you use your debit card, you might be charged a small fee (50 cents?) for the transaction. Also, your bank may charge you an annual fee for the use of this card. But the one that can get people in trouble occurs when they use their card to much and over draw their account. This means they spend more than they have. Say your account is down to almost zero, and you make five purchases that add up to, say, $75. If your account is over drawn on the first of those five purchases, then all of the other four purchases might carry an extra fee, often $20 to $30, each. That’s four times $30 or $120 extra in fees! Say one of those overdrawn purchases was for a four dollar coffee. Well, that four dollar coffee latte cost you $34! And banks love it when this happens. They get to collect ons in fees for doing essentially no work on their part.
The second problem with debit cards is that people who only use debit cards generally spend more, a lot more, than people who pay for things as much as they can with cash (you know, dollar bills?). People who use only debit cards sometimes justify their habit saying that they get to keep a good record of their expenses. Maybe this is true, but I suspect that for most people overuse their debit cards because it’s easier than always stopping by the bank.
Go back to the Glossary page or go Home.
These are often confused with credit cards, but they behave differently. Basically, many bank accounts (or other accounts where someone holds money) offer debit cards as a way to get money out of the account. When you purchase something with a debit card, the process looks and feels similar to using a credit card. You swipe your card and, instead of signing your name, you sometimes have to enter your PIN code. And from then on, the item you purchased is yours.
Except what happens behind the scenes is different from credit. With a debit card, the amount of your transaction is deducted from your bank account. So if you buy something for $45 and you used you debit card, pretty soon after your transaction at the cashier or checkout (again, real or virtual), your account is reduced, or debited, $45.
This is handy because you don’t have to carry around cash. And, you aren’t charged interest because you’re not taking a loan as with a credit card.
But, though debit cards can be a great tool, there are two main problems with them, problems that aren’t often talked about. First, there are a lot of fees that can arise that you might not know about (banks often don’t seem to go out of their way to tell you about the fees they charge you). For example, each time you use your debit card, you might be charged a small fee (50 cents?) for the transaction. Also, your bank may charge you an annual fee for the use of this card. But the one that can get people in trouble occurs when they use their card to much and over draw their account. This means they spend more than they have. Say your account is down to almost zero, and you make five purchases that add up to, say, $75. If your account is over drawn on the first of those five purchases, then all of the other four purchases might carry an extra fee, often $20 to $30, each. That’s four times $30 or $120 extra in fees! Say one of those overdrawn purchases was for a four dollar coffee. Well, that four dollar coffee latte cost you $34! And banks love it when this happens. They get to collect ons in fees for doing essentially no work on their part.
The second problem with debit cards is that people who only use debit cards generally spend more, a lot more, than people who pay for things as much as they can with cash (you know, dollar bills?). People who use only debit cards sometimes justify their habit saying that they get to keep a good record of their expenses. Maybe this is true, but I suspect that for most people overuse their debit cards because it’s easier than always stopping by the bank.
Go back to the Glossary page or go Home.