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When you have a checking account with a bank or credit union, you will likely receive a debit card. This card allows you to make secure and instant purchases in-store or online by using money from your checking account to pay directly for your purchases, as well as making cash withdrawals from ATMs. Most banking institutions issue debit cards for free.
When you get a debit card, you need to set up a PIN code that you use to make transactions. This adds a level of security. It is important not to choose a predictable PIN code like your date of birth or your address and not to share your PIN code, because those who have it can access your bank account.
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How is a debit card different from a credit card?
Although these thin, rectangular pieces of plastic look essentially alike, they are very different. With a credit card, you essentially borrow money from your line of credit, while the debit card immediately takes money from your connected bank account to pay for the purchase. For example, if you have $ 550 in your checking account and you pay $ 100 for groceries with a debit card, your balance will be $ 450. The withdrawal is immediately reflected in your current balance.
Credit cards, on the other hand, offer a grace period, which runs from the date of your purchase until the due date on your account statement and can extend up to about eight weeks. But if you don’t pay your credit card account balance on time and in full, you will have to pay high interest charges. Interest continues to accrue until you pay off the balance in full (unless you have a 0% APR card). Essentially, you could be paying a lot more for any products or services you originally purchased if you have interest on your balance each month.
While there are benefits to using a credit card – including the ability to earn rewards and cash back rewards as well as increased fraud protection – sometimes it’s best to withdraw your debit card.
1. You need to have access to quick cash
If you need cash, you can use both a debit card and a credit card to withdraw money from ATMs. When you use a credit card to withdraw money, this is considered a cash advance and you are immediately charged interest on the transaction (often more than if you only had a month-to-month balance) . Most financial experts caution against cash advances as they can be very expensive.
If you use a network ATM to withdraw money with your debit card, the transaction will be free. If you are in a hurry and use an off-network ATM, you will likely be hit with transaction fees from both your bank and the ATM provider. It can get expensive, but not as expensive as when you use a credit card to withdraw money.
Some banks offer to reimburse a number of off-grid ATM fees each month, quarter or year, such as Ally and Allying.
Many retailers offer the option of adding a cash amount for withdrawal to your point-of-sale purchase when you use a debit card.
If you find yourself in a situation where you need cash and can’t find an ATM on the network nearby, Ted Rossman, Senior Industry Analyst at Bankrate, recommends going to a retailer and withdraw with purchase to avoid ATM fees.
While this strategy can save you money on transaction fees, you need to have the funds available in your checking account to cover both your purchases and the extra cash added to your sale. If you overspend, you may be charged an overdraft fee from your bank. (Check out Select’s list of the best checking accounts for travelers.)
2. You can avoid merchant fees
Some small businesses, online retailers, and restaurants will charge extra when you use your credit card to make a purchase, but will exclude debit cards from this charge.
“As much as I love credit card rewards, I wouldn’t want to pay a 3% fee just to get 1% or 2% cash back,” says Rossman. “If the debit card is not charged a processing fee, it would be a better choice.”
Also, you may want to consider using a debit card rather than a credit card when making an international purchase if you have a credit card that charges foreign transaction fees. Before traveling abroad, be sure to check which costs are the lowest.
3. You can better manage your expenses
“If you have credit card debt, it would make sense to put routine purchases on a debit card in order to avoid getting into more debt. But it’s a bit of a trap because you might not. not be the money, ”says Rossman.
If you only pay a minimum payment to credit card accounts each month, interest continues to accrue on both revolving balances as well as any new purchases. “It’s part of what gets people in trouble with credit cards,” says Rossman. “These minimum credit card payments can go on for a long time and cost you a lot of money in interest.”
In general, he says he uses credit cards as much as possible because they offer better rewards programs and better protections for buyers (fraud resolution, extended warranties, purchase protection, etc.) than credit cards. debit. “Of course, this strategy only works if you pay your credit card bills in full, otherwise the high interest rates outweigh the benefits,” adds Rossman.
4. You have a debit card with rewards
If your credit card options are limited due to bad credit history, you may want to consider a debit card with rewards. Rossman recognizes that debit card rewards lag significantly behind credit card rewards. “In fact, most debit cards don’t offer any rewards,” he says.
One of the most remarkable is the Discover the Cashback debit account, which offers cardholders 1% cash back up to $ 3,000 in monthly debit card purchases, and The Cash Card (App Cash debit card), which offers cash back “boosts” of up to 15% at select retailers.
While some big banks like Bank of America don’t offer cash back rewards on any of their debit cards, they do have a program called BankAmerideals, which allows checking account holders to access perks like cash back. in cash, coupons, promotional codes, discounts and access to unique experiences. You can see all the offers available by logging into your online account. You usually need to register for the rewards to be activated.
If you’re tempted to overspend and earn interest on credit cards with high revolving balances and high interest, a debit card can help you manage your finances because you won’t be able to spend more than you can. have in the linked account. .
“It is essential to think about your use of the card and your overall financial health,” says Amy Zirkle, Payments and Deposits Program Manager, Office of Consumer Credit, Payments and Deposits Markets at Consumer Financial Protection. Office (CFPB). “There are pros and cons to using both debit cards and credit cards. “
The golden rule of using a credit card is to pay off your balances in full each month. “My best advice is to use a credit card like a debit card – paying in full to avoid interest but taking advantage of the superior rewards programs and protections for credit card buyers,” says Rossman. “There are many no annual fee credit cards that offer at least 2% cash back on every purchase.”
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.