It may be hard to imagine the days when you pulled out your checkbook to pay for groceries at the supermarket. In today’s day and age, most people’s wallets are filled with plastic cards rather than paper checks or bills. Since the first card was issued in the late 1970s, debit cards have steadily grown in popularity to become the most widely used payment method in the country. In fact, a recent study showed that nearly one-third of all purchases in the United States are made with a debit card.
Debit cards have made their mark on the world, and rightly so. They’re easy, convenient, safe, and a good tool for those wanting to take control of their finances. If you’re wondering if using a debit card is right for you, you’re in the right place! We’re here to break down how a debit card works, how they’re different from a credit card, and the benefits of using them.
How does a debit card work?
Getting and using a debit card is easy! To obtain one, you’ll need to start by opening a checking account at a financial institution.
The credit union or bank will likely require basic identifying information to open your account, like a driver’s license and social security number, so be sure to have that ready. Most financial institutions will also require a minimum balance— often a small amount like $5— to get started.
Once you get your account set up, you can request a debit card. If you sign up while in an Amplify Credit Union branch, you can get your debit card immediately—no need to wait or go through a separate activation! If you receive a debit card through the mail, you will need to activate it before you can start making purchases.
You’ll also be asked to choose a personal identification number (PIN). Your PIN will be required for most purchases and is one thing that helps keep your card and account secure. Whenever you make a purchase, the money will be automatically taken out of your checking account. There’s no bill at the end of the month to pay off— it’s simply just paying as you go.
What is the difference between a debit and credit card?
Your debit card will look much like a credit card. There is a 16-digit number that is tied to your account, as well as an expiration date and security code on the back. However, though they may appear to be the same, the way that a debit card and credit card works are fundamentally different.
When you use a debit card, you’re spending money that you already have. The money is automatically debited from the account that the card is tied to.
A credit card, on the other hand, is essentially a type of loan. Whenever you charge something to the card, you are borrowing the money from the financial institution.
While it’s wise to pay your card off in full every month, you technically are only required to pay the minimum amount. Because you are borrowing, your credit card company will charge you interest. This makes it easy for people to slide into debt by spending money that they don’t have and can’t repay.
What are the benefits of a debit card?
There are several advantages to using a debit card.
1. There are no interest charges or fees on a debit card.
One of the top reasons to use a debit card is that you’ll have no interest charges and far fewer fees. You won’t get a bill at the end of the month, and you’ll never have to pay any interest on those purchases. Checking accounts also usually have no annual fees, unlike some credit cards.
2. It can be a great budgeting tool.
If you’re on a self-imposed budget, it’s advantageous to spend money you already have rather than money you have to borrow in the form of a credit card purchase. Your bank balance places an automatic limit on your spending and keeps you within your means.
With some financial institutions, you can also open two or more accounts and have individual debit cards attached to them. You can use this to recreate the “envelope method” of budgeting. Also known as “cash stuffing”, the envelope method places a set amount of money in an envelope or designated account, for a specific spending category like groceries or entertainment. When the envelope is out of money, your spending has to stop, putting you on an automatic budget.
Amplify Credit Union offers our members the opportunity to use multiple debit cards. Here’s what it looks like in the real-world:
- You could open a second account designated for Christmas gifts.
- Each month, you’d set aside some funds in that account.
- When Christmas comes around, you can use that card to make your Christmas purchases without worrying about dipping into your ordinary savings.
3. It can save you time and hassle.
A debit card is easy. There’s no need for making sure you have the right amount of physical cash or worry about running low on checks. You can even easily integrate it into your digital lifestyle. Most debit cards can be added to digital wallets, giving you access to easy online shopping and sending money to friends and family. (Yes, Amplify has this option too!)
4. Debit cards are secure.
It’s like paying cash— without having to carry around a wad of cash. If you lose your cash, it’s gone forever. If you lose your debit card, your bank or credit union will replace it for you. Many financial institutions will also monitor for any unusual activity on your card and will notify you and/or stop the transaction if it is believed to be fraudulent. Amplify offers an additional layer of security with Zero Liability, which protects you against any unauthorized purchases while your card is lost or stolen.
5. You don’t need approval to have a debit card.
Unlike with credit cards, there is no approval process required for becoming a debit cardholder. Your bank or credit union can give you one when you open a checking account.
6. It’s easy to get cash when you need it.
If you do find yourself in a situation that requires cash, a debit card is the easiest way to get cash quickly. No matter what hour of the day, any ATM will give you access to your bank account. When using your PIN at a grocery or retail store such as Walmart or Target, you will also likely have the option to get cashback.
Using a credit card for this same purpose can sometimes lead to extra charges and, of course, interest payments if the cash advance is not repaid in full in a timely fashion.
7. You can take advantage of consumer protection.
It’s a common misconception that only credit cards protect against identity theft. Not true! A lot of debit cards protect against fraudulent purchases. It varies by financial institution, but if you do have identity theft protection and the purchases are reported in a timely manner, the institution will remove those purchases. Amplify is proud to offer our members identity theft protection. Please note: if you’re a member and you’d like to opt-in for identity protection, there is a separate sign-up process to add this feature.
8. You can use card control to protect your account (if your financial institution offers it).
You debit card is lost or stolen, and now you have to figure out how to shut it down as quickly as possible. It’s happened to everyone, right? This is exactly what card controls are for! With card controls, you can shut the card down instantly. Every financial institution is different, but here are just some of the typical actions you can take with card control:
- Lock or unlock your debit card with a single tap
- Customize your alerts or controls by location, merchant types, transaction types, and spend limits
- View every recurring payment on your card within 30 days of your most recent transaction.
- Identify recurring subscriptions
- Set up travel notices
All of these actions used to mean a long phone call or going into the branch–not anymore! Card controls allow you to take action on your own account and on your own schedule.
Ready to use a debit card?
If you don’t already have a debit card, there are many advantages to getting one. Unlike credit cards, you don’t have to worry about interest rates or getting yourself into debt. They’re accepted by most places and are as easy to use as cash. And, if you’re trying to wrangle in your spending, they can be a great budgeting tool. The list of pros for a debit card is a long one— it’s no wonder that they’ve become the most popular payment method in the country!