Introduction
Debit cards are a convenient way of paying without having to borrow or pay interest and charges.
They are linked to a bank account, and rather than allowing you to run up a debt that you later clear, the funds are taken almost immediately from your account as and when you use the card.
Switch, one of the original companies to run debit schemes has been taken over by Mastercard's Maestro system, and so the major UK debit cards are now run, like credit cards, by Mastercard and Visa. This means they can be used internationally at more or less anywhere that accepts credit cards.
In some countries the debit card is multipurpose, acting as the ATM card for withdrawing cash and as a check guarantee card. Merchants can also offer "cashback"/"cashout" facilities to customers, where a customer can withdraw cash along with their purchase.
Types of debit cards
In the United Kingdom banks started to issue debit cards in the late 1980s. This was in order to reduce the number of cheques being used, which are costly for the banks to process. As in most countries, fees paid by merchants in the UK to accept credit cards are a percentage of the transaction amounts, which funds card holders' interest-free credit periods as well as incentive schemes such as points or cash back. On the contrary, debit cards do not usually have these characteristics, and so the fee for merchants to accept debit cards is a low fixed amount, regardless of the transaction amount. There are two main types of debit card:
- Online debit ("PIN debit" or "debit") - Online debit cards require electronic authorisation of every transaction. The debits are reflected in the users account immediately. The transaction may also be secured with the personal identification number (PIN)
- Offline debit ("signature debit" or "credit") - Offline debit cards have the logos of major credit cards and are used like a credit card. This type of debit card may be subject to a daily limit, as well as a maximum limit equal to the amount currently deposited in the current/checking account from which it draws funds. This type of debit card is similar to a secured credit card.
How debit cards work
Debit cards are linked directly to your bank account. You can use them to buy goods or withdraw cash and the amount is taken from your account right away.
You can also use debit cards to get 'cash back' from certain shops (you buy goods and also ask for money back from the cashier). The total amount is deducted from your account right away.
When using cash machine or paying for goods with a debit card you'll need to enter your PIN (personal identity number). When buying goods you usually enter it into an electronic hand held device, but in some cases you may have to sign.
Most bank accounts offer debit cards. Most debit cards double up as 'cheque guarantee cards', guaranteeing that your cheque will be honoured by your bank up to a stated amount.
What happens if there's not enough money in your account?
This will depend on the type of debit card you have:
ˇ if you have a Solo or Electron debit card the balance in your account is checked before each transaction if theres not enough money you wont be able pay or withdraw cash with the debit card without prior agreement
ˇ if you have Switch, Visa or Delta card your account balance wont necessarily be checked and the payment may still go through.
If you go overdrawn the charges youll pay will depend on whether or not you have an authorised overdraft arrangement with your bank. If you do, youll pay the agreed amount of interest at the end of each month. This is usually much lower than interest charged on credit cards.
If you dont have an overdraft agreement, or you exceed the agreed limit, your bank may allow the payment to go through but youll usually pay much higher fees than if you had an agreed overdraft.
Debit card or credit card which is right for me?
When you buy goods or get cash with a debit card the money is taken from your bank account right away. With a credit card you get a monthly a bill. If you don't repay the amount owed in full on a credit card, or if you take out cash, the charges are very high.
Credit cards allow you to 'buy goods now and pay later' - called 'buying on credit'. This isnt linked to your bank account. Like debit cards, credit cards can be used to buy goods in shops over the telephone and Internet, with the same details being required.
Relevant Net Lawman document templates:
Relevant Net Lawman articles on Consumer Credit:
| 
