After you open your checking account, banks will generally offer you a free ATM card. This card will allow you to deposit and withdrawal money from your checking account. You can also check your balance and transfer funds between accounts with your new ATM card. Some ATM cards double as debit cards. You can use these cards to make purchases at brick and mortar stores and online retailers. If your card also functions as a debit card, it will have visible Visa, Discover, Mastercard, or American Express logos.
These cards function similarly to credit cards, but they aren’t identical. We’ll explain the differences between them as well as when to utilize each type of card.
ATM (Automated Teller Machine) cards are the easiest to understand. Banks (as well as some credit unions) give these cards to their patrons. They are most commonly used to withdraw money and perform basic transactions at virtually any ATM. The vast majority of financial institutions that offer these cards charge a fee to the user if the card is used to withdraw money from an ATM that belongs to another bank. These cards cannot be used to buy items from retailers because they don’t bear the major credit card logos.
- accessing money anywhere
- restricting daily spending
Debit cards are also commonly referred to as check cards. They can perform every function that an ATM card can, however, a debit card can also make purchases at retailers (both physical and online) where credit cards are accepted. The cost of whatever you purchase at these stores is removed from your checking account. Your bank may charge a fee for using the debit card in place of paper checks.
- gaining access to money in your checking account
- replacing physical checks
- basic everyday purchases
Debit cards can be used instead of credit cards. However, some special rules apply to the use of a debit card in place of a credit card when you are renting a car or hotel room (anywhere that the bill is only totaled after you have used the service). These businesses can subject your checking account to an authorization hold, which can make the funds in your checking account basically unusable.
Prepaid Debit Cards
Prepaid debit cards are relatively similar to traditional debit cards. Instead of using money from your checking account, a prepaid debit card will have money “loaded” onto it. You can load a prepaid debit card using direct deposit, depositing a check directly onto the card, or adding cash to the card electronically or in-person. You can spend as much money as you loaded onto the card.
A prepaid debit card is one of the easiest cards to get accepted for. They are a great option for people with a less-than-stellar financial history or for people that struggle to open a bank account. However, this type of card usually comes with fees and additional expenses. They are not as versatile as a normal debit card, and they can be inconvenient if you forgot to reload your card.
- people that struggle to find a bank to open an account or card with them
- restricting spending
When you use money from a credit card, you are essentially taking out a loan from the bank or credit card company. What you purchase with a credit card does not come out of your checking account. Instead, it will create a loan balance that you will have to pay for later on. Since your credit card company is loaning you money, you will have to pay interest. If you pay the entire loan back every month, you can usually avoid these interest fees (plus late payment expenses!).
For everyday purchases, it is actually safer to use a credit card
- If your check card is misplaced or stolen, they can withdraw money from your checking account. This could make it difficult to pay your bills and cause you to lose (potentially) thousands of dollars.
- Credit card companies offer protection against fraud. Credit card companies limit your losses to only $50. This is federal law, meaning that every credit card company has this policy. Most debit cards also have regulations and policies in place to combat fraud, but you will likely not find an offer quite as generous.
Credit cards do have their downsides though. The biggest drawback: credit cars can tempt you to spend more than you can afford. If you spend more than you can pay, you are stuck with high-interest debt. This can hurt your credit score and in turn make it harder for you to take out loans for big-ticket items, like houses or cars.
- people good in a budgeting money
- making everyday purchases
- creating a good credit score
The Bottom Line
Most people have multiple cards, meaning that you don’t just have to pick one. Knowing which card is suited to which scenario is beneficial to every consumer. It will make your finances easier to manage your money and skate around fees. Choosing the right card lets you keep your money safe!