5 advantages of using a debit card

Quick insights

• Debit cards provide a convenient way to spend directly from your bank account balance, which may help encourage good financial habits.
• The fees associated with debit cards tend to be lower than those with credit cards, which can make them a cost-effective option for everyday spending.
• Though spending with a debit card comes from real money in your account, it may still be possible to overdraw your account and incur fees.

In recent years, debit cards have held their rank among the top three forms of payment, second only to credit cards and outpacing cash.statista-market-share There are many benefits of debit cards, including several that can help contribute to more thoughtful spending and healthy habits. In this article, we’ll discuss five advantages to using a debit card to help you decide whether to use yours for everyday payments.

First benefit of debit cards: Direct access to your money

When you tap or swipe with a debit card, you’re spending directly from your bank account. This can be useful in preventing overspending and managing your budget.

More thoughtful spending

When you spend with a credit card, you’re essentially borrowing money that will need to be repaid at a later time. On the other hand, spending with a debit card allows you to draw directly from your own (previously deposited) funds. Being limited to spending only your own money can be helpful in preventing overspending and debt accumulation, especially when compared to the flexibility and interest associated with credit cards. However, your bank’s overdraft policy may automatically cover a purchase when your balance is short and charge an overdraft fee. If you prefer to have a charge denied when your balance is low, you can choose to opt out of overdraft consent.

Encourages budget management

Another benefit of using a debit card is that it may be easier to track and maintain a budget. Unlike cash, each purchase you make with your debit card is labeled with a transaction description. This makes it easy to see exactly where each dollar went when looking at your bank statement, and it can also help you spot unauthorized purchases in the event your card is stolen.

Second benefit of debit cards: Modern features

Carrying a card that’s attached to your checking account bears certain risks. However, many debit cards come with a variety of features intended to help prevent fraud.

Fraud protection and alerts

Some banks extend zero-liability policies to debit card users in the event of fraudulent charges. This means that cardholders with accounts at certain banks will not be held responsible for charges they didn’t make if their card is stolen. To help monitor for fraud, your bank may also provide transaction alerts or reach out to confirm large purchases.

PIN security

Debit cards require a four-digit PIN (Personal Identification Number) to confirm your identity for certain kinds of transactions. While a PIN doesn’t need to be entered every time a purchase is made, it’s typically required for balance inquiries and cash withdrawals at ATMs. Setting a strong PIN and protecting it can help keep your account safe.

EMV chip technology

Once revolutionary technology, original debit cards were equipped with a magstripe for swiping at stores and ATMS. However, magstripe swiping transmits complete card data, leaving cards vulnerable to certain types of fraud. In recent years, EMV chips have been added to cards to improve security. EMV (which stands for Europay, Mastercard and Visa) technology generates a single-use code to process a payment, protecting sensitive card data.

Third benefit of debit cards: Convenience

Debit cards are widely accepted and can be used for transactions practically anywhere electronic payments are allowed. Debit cards also provide easy access to your balance through a vast network of ATMs, allowing cardholders to take cash out of their account even when they are not near a bank branch. Most banks also offer the ability to check your balance, send transfers and maintain your account with a mobile application. Additional debit card conveniences include the ability to set recurring payments, shop on the web and pay bills online.

Fourth benefit of debit cards: Cost-effectiveness

Unlike credit cards, there are no interest charges associated with debit card transactions nor late fees to pay. Your bank may charge a monthly service fee for checking accounts, but the fee could be waived by maintaining a certain balance or setting up direct deposit. Depending on your use, this may make spending with a debit card more cost-efficient than spending with a credit card. Some debit cards also offer rewards programs which can help offset spending, such as cash back or points program.

Fifth benefit of debit cards: Building financial history

Because there’s no credit check required to open a bank account, debit cards can be a good entry point to the banking system for someone who is just beginning their financial journey. Having a debit card may help improve your relationship with the issuing bank, potentially leading to better terms with other products. Because of the overall low risk of using debit cards for daily transactions, they can be a useful tool to help build positive financial habits.

Disadvantages of debit cards

While there are many benefits to using a debit card, there also several potential drawbacks to consider:

• Debit cards don’t help build credit. Unlike with a credit card, good financial habits won’t help you establish or improve your credit score.
• Misuse of debit cards could lower your score. Carrying a negative balance on your checking account after an overdraft can hurt your credit.
• Spending is limited to your available cash. Though this can also be an advantage, spending limitations can be a problem when unexpected expenses arise.
• Fraud affects your money directly. With credit fraud, you won’t have to pay for disputed charges while they are being investigated. But when money is stolen from your debit card, it’s gone until the bank completes an investigation in your favor and your account may be frozen.
• Credit cards have more legal protections. While many banks do offer zero-liability policies on debit spending, the formal legal protections for debit card users are less robust than protections for credit card users.
• Reward programs are uncommon. Credit card rewards programs can be a major draw for consumers looking to offset costs. While some debit cards may come with certain rewards, it’s not typical of most cards.

In conclusion

Choosing whether or not to spend with a debit card is a personal decision. While debit cards can have much to offer in terms of convenience and cost-effectiveness, it’s important to consider your personal financial needs and the habits you want to develop. Be sure to do your own due diligence and review your card’s terms and conditions before committing to a spending strategy.