Connect with us

Debit Card

« Back to Glossary Index

What Is A Debit Card? 

A debit card payment solution that makes payments by drawing on the cash reserves of the cardholder rather than from a bank loan. 

It is a plastic payment card that is also known as a bank card. It may also be referred to as a check card, or most popularly, an ‘ATM’ card. 

Very similar to a credit card in that they both look identical. They both have 16-digit card numbers, and can both fund online and store purchases. 

However, they differ in that credit cards help obtain loans for the card issuer’s purchase and withdrawal needs. 

Deeper Definition 

Debit cards offer a viable and safer alternative to cash purchases. Consumer protection is increasingly being incorporated especially when issued by brands such as Mastercard and Visa.

Types of Debit Card

  • Standard Debit Card (SDC): They run on the ideal model of funding purchases from a current or savings account linked to the card.
  • Electronic Benefits Transfer Card (EBTC): They are issued by government agencies at any tier to allow users use their benefits for their purposes. 
  • Prepaid Debit Card (PDC): They are usually pre-loaded with a certain amount. This is held in a designated account to aid purchases for the users. They frequently charge activation and usage fees unlike other types.

Both PDC and EBTC can be used by customers that might not necessarily have savings or current accounts.

Advantages of Using Debit Cards

  • Less likelihood to engage in impulse buying or to incure debts. Except in the rare cases where overdraft fees are charged.
  • Increased Fraud Protection: If immediately detected and reported, debit cards can be blocked and lost funds can be traced for reimbursement.
  • No Annual Fees: Only in cases of usage in facilities outside of the issuing brand and maintenance fees do debit cards place a levy on users. This is unlike credit cards that charge for cash advance with high interest rates.

Disadvantages of Using Debit Cards

  • No Rewards: Points, miles and cash back options available to credit card users are out of the reach of debit card owners who would be unable to save certain percentages on purchases.
  • Inability to Build Credit: Creditworthiness and credibility are built when users are able to pay back loans in good time and this is particularly helpful in obtaining loan facilities in the future. 

Debit card users miss out on these features.

Debit Card Example

Jane opens a new current account with Bank Of America. Bank Of America will supply Jane with a new debit card connected to the current account. She can use her new card to make purchases. The money will be directly debited from her current account when she does so.

« Back to Glossary Index

Get the news right in your inbox