Uses of a Debit Card

Growing usage of debit cards is replacing cash as a payment option.

Debit cards have become a ubiquitous and convenient way for consumers to pay and shop for goods and services. For many, debit cards have become a replacement for carrying cash. Money is taken directly from your checking account when you make debit card purchase.

History of the Debit Card

Seattle's First National Bank issued the first debit card in 1978 to its business executives. At first customers did not need a check for the transaction, as the bank would guarantee the payment. However, business customers needed to have a large savings account. In 1984, Landmark created the first nationwide debit system using automated teller machines (ATMs) allowing smaller banks to tap into banking systems outside of the U.S. In 1998, debit card transactions outnumbered check transactions for the first time. By 2006, debit card transactions had surpassed credit cards transactions.

Uses

The bank networks that compose MasterCard and Visa issue debit cards. Because of this, you can use your debit card just about anywhere MasterCard or Visa is accepted, which is just about anywhere in the world and for just about any type of purchase, including online purchases. Many people opt to use their debit cards over credit cards because there are no finance charges involved, since it is their money.

How It Works

You have an option of requesting a debit card when you open checking account. You can get a debit card issued to you immediately. The bank officer will ask that you create a four-digit personal identification number (PIN) when he issues you the debit card. The PIN allows you to access ATM machines around the world. You can also sign for your debit card purchases the same way you use a credit card. One caveat is that cash withdrawals from your bank's ATM are free; however, using another bank's ATM will cost you a fee that varies per bank.

Advantages of Debit Cards

The main advantage of having a debit card convenience. You don't have to carry around your checkbook or present identification. You pay your bill immediately when you use a debit card, and you don't pay any finance charges since you're using your own money. You also don't have to carry cash, an important criterion for those concerned about safety.

Disadvantage

Some banks charge a transaction fee for using your debit card. You also don't have a right to withhold payment should you have dispute over a transaction. And a stolen debit card means some has access to your bank account. During this time, checks you have written are likely to bounce causing you to rack up fees. Consumer liability is limited to $50 on debit card transactions under federal law and debit card issuers offer a "zero liability" policy on unauthorized usage. So you eventually get your money back in a debit transaction dispute. You may be prone to overdrawing on your checking account because of a practice called "blocking." Some vendors, such as gas stations and hotels, put a hold on your account until the debit transaction is processed, which could take one to several days. If you are not careful, you may end up writing checks against funds already earmarked for debit card purchases.

References

• Nolo: Different Types of Credit & Debit Cards
• "ConsumerReports"; The Dark Secrets Of Debit; September 2007
• "US News"; Fraud Protection: Debit Versus Credit Cards; Kimberly Palmer; August 2009
• BrightHub; The History of Debit Cards; M Lambe; July 2009
• CreditUnions; Debit Card Usage Surpasses Credit Cards in 2006; Appoorva Saxena; January 2007