Debit cards function almost exactly like credit cards when used to make a purchase or reservations or to provide collateral for renting automobiles or equipment. However, on the consumer’s end, there is a difference.
While credit cards allow the consumer to add to a balance owed, a debit card removes funds from an account already belonging to the consumer. Often they are issued by banks on the consumer’s checking account, and function exactly as if a check had been written, withdrawing the funds and transferring them to the establishment accepting the card as payment. They may also be issued by some other agency, such as a government agency offering welfare, money for food purchases, or handling child support payments. They can also be a gift card or deposit card, where the card is purchased for a sum of money which is then available to be spent until it is exhausted (and can usually have additional deposits made).
The advantages of debit cards are many. The consumer does not have to physically write a check, and the bank is saved the trouble of processing paper checks. The cost of purchasing checks is saved. Debit cards can also be used as credit cards for reservations or rental collateral, where checks are generally unacceptable for these. Debit cards, unlike credit cards, will not allow a consumer who lacks self-control to go over his ability to pay and drown him in debt. Many debit cards also allow cash withdrawals from ATM’s (automatic teller machines), sometimes without a fee.
The disadvantages are few, but they do exist. Funds are immediately withdrawn from the checking account, if it is a bank debit card. While sometimes checks are also processed immediately, this is not always the case. So it becomes more important than ever to ensure that the funds are available for withdrawal before presenting the card. Often a bank debit card will incur the same charge as an insufficient check if the consumer tries to use it for an amount greater than the available balance. This is sometimes even true if the consumer uses the card to withdraw cash from an ATM, even his own bank’s ATM. So it is of the utmost importance to keep up with account balances at all times when using debit cards. There is also a bit more potential for fraud with electronic means than when using paper checks.