Debit Cards

What is a debit card?

A debit card is a plastic card which provides an alternative to using cash when making purchases. Using a debit card is similar to writing a cheque as funds used will be deducted from the user’s bank account upon a successful transaction. Every transaction will require either the user’s PIN or signature.

What are the advantages of a debit card? When should we not use them?

Advantages:

• It is easy to obtain a debit card, even if one is not creditworthy.
• A debit card prevents a user from landing in debt, having to pay interest, late fees, or fees limited to credit cards as a result of its use.
• Debit card transactions are faster and less intrusive as merchants accept debit cards without much identification as they think that transactions will not be dishonored at a later date.
• A check card can allow the user to avoid check writing, which is insecure and contains the account holder’s personal information. Check cards deduct funds from the user’s account instantly, settling the transaction at the time of purchase, avoiding the need to pay a credit card bill at a later date.
• A debit card allows the user to obtain cash from an ATM or a PIN-based transaction, without any extra charges, other than a foreign ATM fee.

Disadvantages:

• Some banks charge over-limit fees or non-sufficient funds fees based on pre-authorization, even if transactions attempted are refused by the merchant.
• Many merchants believe that funds can be withdrawn from the user’s account when a transaction is done with a debit card, resulting in penalty fees for overdrafts and over-the-limit.
• Debit cards are more insecure than credit cards as theft of PIN is easier with skimming devices.
• In many places, laws do little to protect debit cards user from fraud. The user will be held responsible for large sums of money in a fraudulent debit transaction, with only a small waiver from the bank. The user of a debit card has a short time to report such fraud to the bank in order to be entitled to such a waiver.
• A thief who obtained or cloned the debit card, together with its PIN, will be able to clean the account holder’s bank account, leaving the account holder no recourse.
• The user of a debit card will not be able to go after the card issuer if the goods or services purchased are not delivered or not fit for sale.
• When a debit transaction is made, the user has spent his/her money, and the bank may not be motivated to collect the funds when there is fraud or a dispute, as the money spent is not the bank’s money.
• For some types of purchases, such as gasoline, the bank may place a much greater hold on funds than the actual amount for a fixed period of time. Until the hold is released, any other transaction will be dishonored, or be paid at the expense of an overdraft fee if funds are in sufficient.

 

Do you know?

There are actually two main types of debit cards, listed as below:

On-line debit cards: They work similarly as the ATM. It all an immediate electronic transfer of money from your bank account to the retailer's bank account.

Off-line debit cards: These cards only charge your purchase 2-3 days later, but similarly through your bank account.