A debit card looks like a credit card — and functions like one at the cash register — but acts as a direct link to your bank account. When you pay for something with a debit card, the money for that transaction comes directly out of your checking or savings account, but you’re spared the hassle of writing a check or worrying about whether you have enough cash in your wallet.

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While convenience is the main advantage of using a debit card, there’s another big one, too: With debit cards, you can’t slide into debt like you can with a credit card. You have the ease of paying with plastic, which allows you to make online purchases, and most banks will let you log in online to track your purchases, but you’re spared the monthly bill — and you’ll never pay interest, since you’re spending money you already have.

Does a Debit Card Cost Money?

Debit cards are free or very inexpensive to use, provided you know how to use them. Here are ways using a debit card can cost money, and how to avoid paying:

  • Account maintenance fees: Debit cards are usually a perk of checking accounts, and maintaining those accounts may require a monthly fee of roughly $10 to $15. At many banks, these fees are waived if you maintain a certain minimum monthly balance or authorize direct deposits into your account. You’ll also want to consider other typical banking fees, such as overdraft fees (also known as insufficient funds fees). They can pack a punch if you attempt to withdraw or spend more money than you actually have in your account, whether that’s with your debit card or otherwise.
  • ATM fees: Debit cards also function as ATM cards, so you can use them to get cash even when your bank is closed. As long as you use ATMs within your bank’s network, there’s no charge for this convenience. If you go out of network, though, you could face a fee of about $4 or $5 to withdraw your money.
  • Transaction fees:Finally, you may pay a small fee for each transaction if you use your debit card with a 4-digit PIN, or personal identification number, instead of your signature. That’s because your transaction is routed via the banking network instead of a Visa or Mastercard network, and some of that cost may be passed back to you. The retailer typically eats the cost of signature transactions. So keep that in mind next time you’re asked, “Debit or credit?”

Debit Cards vs. Credit Cards

On the surface, debit cards and credit cards seem quite similar. After all, both are accepted practically anywhere, and both sport some of the most iconic names in payments, like Visa or Mastercard. However, there are many major differences between the two, including:

  • It’s your money: When you swipe a debit card, you’re making a purchase with your own money because your debit card is a direct link to your bank account. With a credit card, you’re essentially taking out a loan from your card issuer that you pledge to repay.
  • No bills: Since you’re using your own money with a debit card, you won’t owe a monthly bill. With a credit card, you must make a minimum payment on your balance every month. And if you don’t pay off the entire balance each month, you’ll also pay interest.
  • Spending limits: With a debit card, you’re limited only by how much money you have in your bank account. Credit-card issuers will set a certain credit limit partially based on how creditworthy they think you are, and increase it over time if you use the card responsibly.
  • Application: A debit card is typically an included benefit of most checking accounts and, in some cases, savings accounts. As long as you don’t have a checkered banking history, a debit card can be yours. A credit card, however, requires a lengthier application that includes a credit check. If your credit score is low, you may not qualify for most credit cards.
  • Effect on credit: You won’t build your credit history with a debit card since you aren’t actually borrowing anyone’s money. Responsible usage of a credit card can raise your credit score — and irresponsible usage can lower it.
  • Risk from theft: If your debit card falls into the wrong hands, a thief can tap your bank account directly. Unfortunately, you could be on the hook for $500 of the damage if you don’t file a report within two days of fraud or theft. With a credit card, you’ll only be out a maximum of $50 — and your credit card issuer has a lot more incentive to help you, since the thief is stealing their money, not yours.
debit card

A debit card looks and, for the most part, acts like a credit card — but it’s linked directly to your bank account, so you can only spend money you already have. Photo: Allan Donque

Are There Debit Card Perks or Rewards?

One benefit that credit cards have over debit cards is that they’re far more likely to offer rewards programs. Some allow you to earn cash back for certain purchases, while others let you accumulate points you can redeem for free airfare, hotel stays, or other goods and services. If you’re interested in credit card rewards programs, check out our guide to the Best Credit Cards.

In the past, a number of debit cards offered similar rewards programs. Though often not as lucrative as their credit-card counterparts, they were a nice perk for debt-wary consumers who wanted to avoid credit cards but still earn rewards for their spending.

Unfortunately, many of these programs have been phased out in the past few years. In the wake of the recession, new legislation took a huge bite out of the fees banks can collect from debit-card transactions, and several banks axed their debit-card rewards to help make up for lost revenue.

There are still a handful of rewards debit cards out there, but you’ll have to keep your eyes peeled. Here are a few we know of that could be worth a look:

  • The PayPal Business Debit Mastercard offers 1% cash back on eligible purchases including groceries, gas, dining, and entertainment. Note that this program is not available for the personal PayPal debit card, however.
  • Discover Cashback Debit offers customers 1% cash back on up to $3,000 in monthly debit card purchases.
  • Bank of America debit card customers can participate in the BankAmeriDeals cash-back program as long as they are enrolled in online banking.
  • The KeyBank Rewards Debit Mastercard lets you earn one point for every $6 you spend in signature transactions online or PIN purchases in store. Points can be redeemed for restaurant, retailer, or travel gift cards.
  • The UFB Direct debit card allows you to earn one airline reward mile for every $3 in point-of-sale transactions.

Prepaid Debit Cards vs. Traditional Debit Cards

Until now, I’ve focused on traditional debit cards that are connected to your bank account. However, there are also a lot of prepaid debit cards out there, and it’s important to understand that they’re very different:

  • Funding source: With a traditional debit card, you can pay for purchases with whatever money is in your linked bank account. With a prepaid debit card, you have to load money onto the card before using it.
  • Overdrafts: If you opt into your bank’s overdraft protection service, your bank will cover you if you make a purchase with your traditional debit card that exceeds the amount of money available in your linked account. (This service does typically come with a hefty fee, however.) With a prepaid debit card, you will not be able to make a purchase if you don’t have enough money on the card.
  • Fees: Traditional debit cards don’t cost anything to use directly, though there can be costs associated with maintaining your bank account or choosing PIN transactions over signature transactions, for instance. Prepaid debit cards, however, usually come with a lot of fees: Activation, reloading, and monthly maintenance fees are common and can vary substantially from one card to another. For instance, the popular PayPal debit card has a $4.95 monthly fee.
  • Application: While you usually don’t need a credit check to get a traditional debit card, you must be approved for a bank account. That can be tricky if you’ve had a checkered banking history. However, just about anyone can get a prepaid debit card — all you need is the cash to fund it.

While prepaid debit cards can be an option for those who don’t have (or want) a bank account, the often-hefty fees make them a subpar replacement. Still, they’re undeniably convenient, so if you think a prepaid debit card is right for you, check out The Simple Dollar’s guide to the Best Prepaid Debit Cards.

Debit Cards Are an Essential Perk of Your Bank Account

Few would argue that debit cards don’t make day-to-day transactions a whole lot easier. While you may still pull out your checkbook to pay major bills, chances are your debit card gets a good workout in stores or online. Best of all, you get all the convenience of a credit card without the monthly bill or the possibility of sinking into debt.

If you want additional guidance on choosing a great low-fee bank account that includes a debit card, The Simple Dollar offers a guide to the Best Free Checking Accounts Right Now. You may also want to take a look at our picks for the Best Banks in 2016.

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