Debit Cards
Debit cards can sometimes look like Visa and MasterCard credit cards, but they’re not credit cards at all. Debit cards basically access money in your checking, savings, or brokerage account, instead of a line of credit. ATM cards are a type of debit card, and some gasoline cards offer a debit feature where the amount you pump will be drawn directly from your checking account.
Debit cards may work in two different waysoff-line and online. Many do both. It may seem confusing at first, but once you’ve used them a few times it should be clear.
On-line Transactions: These transactions require you to enter a Personal Identification Number (PIN) and the money is taken right out of your account. Taking money out of an ATM is an on-line transaction, but making a purchase at a store using a debit card and PIN is also an on-line transaction.
On-line transactions are often routed through one of several networks that process the transaction. This won’t be apparent to you as a consumer; in fact, you won’t even know which network handled your transaction. It only matters in a few cases where there may be a problem with a MasterCard or Visa debit transaction.
Off-line Transactions: These transactions work more like a cross between a credit card and check. You can swipe your debit card through the terminal at the cash registerbut choose “credit” instead of “debit.” Alternatively you might present it to the clerk, who rings it up like a credit transaction. The money is then taken out of your account in a period similar to what it might take a local check to clearanywhere from one to three days.
Merchants often prefer on-line transactions because they’re cheaper than off-line transactions. Issuers of debit cards, however, may prefer off-line transactions because they earn a portion of the merchant fee that is paid.
Read your debit card agreement carefully to see what fees may be associated with their use. Your bank as well as the merchant may charge fees for the use of debit cards. My credit union, for example, allows free off-line use of my MasterCard debit card. But if I use my PIN, I am allowed only four free transactions per month. I’ll be charged $1.50 for any PIN-based transactions above my four monthly free ones.
