When most people think of debit cards, their minds immediately jump to the plastic consumers use to withdraw cash from their bank accounts at an ATM. That is indeed the most common use of the term, but with the banking landscape evolving significantly in recent years and a variety of new financial products hitting the market, it is not the only one.
There are actually a variety of different types of debit cards on the market – all enabling you to spend only what you load – and we’ll do our best to break down the various options below.
1. Check Cards: This is the most common type of a debit card, and most of the time it is simply referred to simply as a “debit card.”
As the name suggests, swiping a check card is exactly the same as writing a check. Specifically, debit cards are associated with the bank where you have your checking account, and when you buy something with one, the purchase price is automatically deducted from your checking account. You then receive your monthly purchase statement from your own bank, but you do not need to make any payments because the money has already been withdrawn from your checking account.
Debit cards / check cards do not allow you to build a credit history. It is very important to keep track of your debit card spending, so that you do not spend more money than you have in your checking account and end up getting penalized with overdraft fees. Keep in mind, however, that regulations require consumers to actively opt-in for the right to exceed their available balance when using their debit cards.
2. EMV Debit Cards: EMV debit cards are the exact same thing as check cards, except for the fact that they have computer chips embedded within them. You see, EMV refers to the most secure payment card security protocol to which the United States is in the midst of migrating from traditional magnetic stripe technology. The embedded computer chip in an EMV debit card contains encrypted information that must match the PIN a consumer enters in order to work. In addition to that level of added security, computer chips are much harder for fraudsters to copy than traditional magnetic stripes.
While there are relatively few EMV credit cards currently on the market, the country’s EMV migration means that such cards will be in greater and greater evidence in the future. Bank of America is the first major financial institution in the U.S. to turn its debit cards into EMV debit cards.
3. ATM Cards: Also known as PIN-only debit cards, this type of product can only be used by entering your personal identification number at an ATM. The purpose of such a card is to cut down on fraud, as someone who finds your lost ATM card won’t be able to get anything from it. ATM cards have become quite rare, with few – if any – major banks offering them these days. The reason for that is banks prefer to give you a check card that doubles as your ATM card and a spending vehicle so they can ultimately make more money.
4. Prepaid Cards: Prepaid cards are identical to traditional debit cards, with the sole exception being that prepaid cards are not connected to a checking account and do not come with a paper checkbook. Rather, funds are stored in a stand-alone prepaid account, and most banking transactions are completed electronically.
Prepaid cards have become increasingly popular in recent years as traditional checking account offers have lost their luster and banks have steered consumers away from them in the wake of the Durbin Amendment. While prepaid cards can be extremely useful – serving as a replacement checking account, financial literacy teaching tool or alternative check cashing tool – they charge an average of 11 different fees and can cost anywhere from $0 – $400 per year, according to CardHub’s 2014 Prepaid Card Report.
5. Gift Cards: Most people wouldn’t consider gift cards to be part of the debit card group, but when you consider the fundamental nature of such cards, it’s clear they belong. Gift cards, you see, involve loading funds onto plastic and then using this plastic to make purchases, at which time money is debited from your account. Sure, you can’t reload a gift card like a prepaid card or write a check like with a checking account, but the ability to load and debit funds is enough to qualify.
Having said that, it’s important for consumers to keep the practical differences between gift cards and other debit cards in mind when they’re shopping, as retailers are increasingly blending gift cards and prepaid cards in store aisles.
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