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What is a debit card and how does it work?

Do you ever stop to think about all the cards that are in your wallet? There are quite a few, aren’t there? You might have ATM cards, prepaid cards, credit cards, and, of course, there are debit cards. But what is a debit card?

Apart from being a small, thin piece of plastic for making payments, how does it function and why should you consider applying for one at your financial institution or bank? What benefits can you expect to receive when using such a card? In this blog post, we’ll look at these questions and more. Interested? Keep reading!

What is a debit card?

A debit card typically has the following characteristics:

  • usually, a 16-digit printed or embossed card number
  • a magnetic stripe
  • a signature strip panel
  • a card security code, or CVV
  • also, there’s the issuing bank’s logo
  • a hologram
  • the card brand logo – Mastercard, Visa or others
  • an expiration date
  • the cardholder’s name
  • and an EMV chip

Although the latter does not appear on all cards and the presence of this feature will depend on your issuing bank. Additionally, each card must comply with the size dimensions of the ISO/IEC 7810 ID-1 standard,

If you’re thinking – but isn’t this just like a credit card? – you’d be quite right, with some exceptions, of course! The key point with debit cards is that they enable you to use funds in your account which you already have. In some cases, you’ll have an overdraft facility available if you exceed the actual amount of funds in your account, but in other cases, your debit or checking account will only enable you to work with funds that you already have.

You could also those cards for withdrawing cash from ATMs or making purchases through credit card readers, debiting the funds from your account. 

7 advantages of debit cards 

They are easy to obtain

Debit cards usually only require that you fill out an application form for a checking account with your bank or financial institution. However, since you are not obtaining a line of credit, there’s no need to prove a strong credit history or credit score to your bank. This makes getting such a card quite a simple process that you could achieve through authorised financial institutions.

Safety and security

We all know that carrying cash with us is not only unsafe, it’s also becoming an outdated way to shop. This is where debit cards come in. They are an excellent tool if your card gets stolen because you can quickly contact your bank or financial institution and stop anyone from using your card by blocking it.

Also, those cards can protect you against theft because they require a PIN to withdraw cash from an ATM, and sometimes, a PIN is also required if you make transactions on a card machine – this, however, will depend on the amount you’re paying. In addition, some debit cards offer cybersecurity protection if you engage in online shopping to ensure that only you – the authorised individual in question – can make purchases with your own card.

No debt, service fees, or interest charges 

Credit cards are famous for the interest that’s charged on outstanding amounts. These rates can fluctuate and you could pay anything from 10% to as high as 32.99%, depending on your bank or depending on whether you’ve incurred late charges. These amounts can add up and cost you more than initially planned for.

With a debit card, you can avoid expensive interest fees. You also don’t end up in debt as you’re using funds that you already have available to you instead of relying on your bank for credit. You can avoid some card fees by withdrawing cash from your bank’s ATM network. Withdrawing from anywhere else could end up costly. This applies to withdrawals from ATMs abroad.

Helps you stay on top of your spending 

Because debit cards and their associated checking accounts mean that you pay or withdraw only what you have, you can make real-time payments and stick within your means.

Most banks or financial institutions offer a mobile app that can help you keep track of spending. You can also avoid making impulse purchases with a credit card as the typical payment date for these purchases is in the following month, usually with a minimum payment that’s lower than the full balance due.

Improve your budgeting

When you make a payment with a debit card, the money is almost immediately taken out of your account. This means that you’ll be more accountable to yourself and able to spend responsibly. 

Earn interest through your checking or savings account 

Your card can also help you earn some extra added income. That is if there’s a minimum daily balance in your account. If this is the case, you could earn compound interest as well as have the added convenience of using your debit card for ATM and cash withdrawals.

Earn rewards 

You’ve heard of credit card rewards, but what about debit card rewards? Yes, it’s possible! It just depends on your financial institution, but you can earn points for money spent and then redeem these points for either travel, shopping, gift cards, or more. 

So, how does a debit card work?

As mentioned above, a debit card typically works by enabling you to use funds that you already have. They work as a cross between ATM cards and credit cards. Here are the similarities: they are like ATM cards because they enable you to withdraw cash from ATMs. Meanwhile, they are similar to credit cards in that they allow you to make purchases through POS terminals. Your account balance will fluctuate, depending on how much you put in it and how much you spend.

Also, it’s good to keep in mind that you usually have a 24-hour limit or ceiling placed on how much you can spend or withdraw within a given 24-hour cycle. Besides this, you’ll be able to use your PIN, which is known only by you, when withdrawing at an ATM or when making a purchase. However, with the latter, it depends on the amount that’s being taken.

Transaction processes 

An image of the chip of a debit card

There are two major transactions you can make using your debit card. These are withdrawals and general payments for purchases. Let’s look at each one in a bit more detail.


Withdrawals at ATMs are still important as we’re not a fully cashless society yet and cash in some parts of Europe is still valuable. Italy is one example. When withdrawing cash at an ATM, you’ll be required to enter your Personal Identification Number (PIN), which is known only by you. Also, you can withdraw only what’s been assigned as your maximum daily limit.

Keep in mind that if you withdraw from an ATM that’s outside of your bank’s network, you’ll incur some fees and charges. The same is true if you withdraw from an ATM in a foreign country. 

Payment methods

There are four main payment methods for making purchases using your debit card:

  • Magnetic stripe – each card comes equipped with a magnetic strip that can be swiped along a POS terminal when making a payment.  
  • Contactless – to make a contactless payment, you need to first ensure that your card has the contactless payment logo. Once you’re sure of this, simply hover your card over the POS device or hold it against the POS terminal for a couple of seconds until the payment has been processed.
  • Chip&PIN – in some cases, you’ll need to insert the card’s chip into the POS machine. This will trigger the transaction. In most Chip&PIN transactions, PIN entry is required. 
  • Online – a more modern payment method that’s increasing in popularity is online payments. This entails entering your card details on a secure payment gateway page which, once payment is approved, enables you to complete your purchase. 

How to use a debit card

You can use your card to make purchases just like you would with a credit card or a prepaid card. There’s one caveat though. You need to make sure that your payment does not exceed your account balance. If this happens, your transaction will probably be declined because of insufficient funds, or you might end up using your overdraft facility, which also incurs some additional costs. 

How much does a debit card cost? 

In short, getting a debit card will not cost you anything. You do, however, need to know that you’ll be using your own deposited funds in the card and that some fees can sneak in as well. Such fees include overdraft fees if you exceed your limit or you might also get a fee for insufficient funds.

There are also fees charged if you use those ATMs which are outside of your bank’s network, and you may also need to pay upfront if you lose your card or it gets stolen. Finally, there are foreign transaction fees if you use your card in a foreign country. 

Where can you get a debit card?

A debit card being used on a card machine

You can mainly get debit cards from traditional banks, financial institutions, or the so-called neo-banks which are banks without a physical location but which enable you to track your purchases and incoming payments through easy-to-use mobile apps. 

Debit card’s safety and security 

Since a debit card requires a PIN for ATM withdrawals, no one except you who knows your PIN can use it without your permission. However, it’s possible that your card falls into the wrong hands, whether you lose it or it’s stolen. In such cases, you need to contact your bank or financial institution as soon as possible.

While some will require that you call a help centre, others will require that you physically go into a branch to declare your card as lost or stolen. The good thing is that the sooner you report your card, the faster your bank can freeze it and ensure no one goes on a shopping spree with your hard-earned cash. Once your card expires, you could easily dispose of it or put it to good use.

What is a business debit card?

A business debit card is typically a plastic card that has almost all the characteristics of a basic one. However, it draws on funds already available to the business itself from sales and profits made. One benefit of using a business card is that the transaction fees are usually lower and there are no interest payments as one would typically have with a credit card.

Although most business cards are plastic, there are new innovations on the market – introducing extra levels of prestige to merchants through metal cards.

Differences between debit and credit cards

Although they look almost identical, there are some differences between debit and credit cards. While you can withdraw cash from both cards, credit cards incur interest charges as you’re essentially borrowing from your bank and you’re expected to pay this amount later. 

Also, credit cards extend a line of credit, which is money that does not belong to you but to your bank. With that card, you pay or withdraw cash using funds that you actually possess. There’s no borrowing involved. 

Furthermore, credit cards can be more suitable for purchases with larger amounts, although this will be carried forward in the next month’s statement which you receive, in addition to credit card interest rates.

Despite this, debit cards don’t issue statements on money borrowed, and you’ll only get your statement at the end of the month indicating your starting balance followed by the number of purchases and ATM withdrawals you made during the month. 


Answering the question “what is a debit card?” may seem simple at first, but as you’ve seen, it’s not as straightforward as it looks. While a debit card may look almost exactly like a credit card, there are some significant differences. One of the major ones is that this card enables you to use funds you already have instead of borrowing a line of credit from a bank or a financial institution.

Once you apply for your card, however, which is a relatively straightforward process, you can take advantage of some real benefits such as paying no interest rates on credit borrowed, enjoying rewards, and more.

Use your debit card to withdraw cash at ATMs, swipe or tap it at a merchant to purchase items, or consider shopping with it online. These options have been created for your convenience!

Disclaimer: Please be aware that the contents of this article and the myPOS Blog, in general, should not be interpreted as legal, monetary, tax, or any other kind of professional advice. You should always seek to consult with a professional before taking action, since the particulars of your situation may materially differ from other cases.

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