Finance > Banking 101
What Is a Debit Card?
A debit card is linked directly to your bank account and allows you to make purchases without the need for cash.
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What is a Debit Card?
A debit card is linked directly to your bank account and allows you to make purchases with non-cash payments or make a withdrawal from a cash machine (ATM). The functionality is similar to a credit card, however, due to a debit card linking to a current account (see below), you are spending money that is yours and not borrowed.
How Do I Get a Debit Card?
You receive a debit card from the bank when you open a current account. There are multiple current accounts available, e.g. student, business, joint etc., so it’s important to choose one that suits your personal circumstances.
Current Account: This is where your money for day-to-day spending is stored. When you make a payment at a shop or buy a gym membership, the money will most likely come out of this account. As well as using it for transactions and to withdraw cash, you can also deposit money into this account, e.g. work wages/salary.
What is the Difference Between a Standing Order and a Direct Debit?
- Direct Debit
A direct debit is when the debit card owner permits a third party to take money from their account when a payment is due.
Example:
When you sign up for a gym membership on a 12-month contract, the gym is likely to set up a direct debit. By signing up, you give the gym permission to take the money from your account each month.
- Standing Order
A standing order is when the debit card owner instructs the bank to pay a specific amount to another person or organisation at intervals of their choice, i.e. weekly or monthly.
Example:
If you rent a flat, you will likely have to pay your landlord a specific amount each month. For this, you would set up a standing order, which instructs the bank to send the agreed amount of money to your landlord on a specific date each month.
Charges and Fees on a Debit Card
- Overdraft
An overdraft lets you borrow money within your current account. For example, if you have £10 in your current account and spend £20, you will enter an overdraft, and your balance will be -£10.
There are two types of overdraft:
- Arranged overdraft – This is when your overdraft limit is agreed with your bank.
- Unarranged overdraft – This occurs when you spend more money than you have in your current account without previously arranging an overdraft or you exceed your arranged overdraft.
Both types of overdraft will come with associated charges if you use them. Charges are specific to your account and provider.
- Abroad Payments
You may be charged for using your debit card abroad, be it for a transaction or withdrawing cash at an ATM. If this is the case, you may want to look into other forms of payment when travelling.
Contactless Payments
Some debit cards will allow you to pay up to £100 using contactless technology. Using contactless makes paying a lot quicker due to only tapping the card instead of using the chip and pin.
Good Practice
- Lost Card
If you lose a card, report it to the bank as soon as possible. The sooner you report the card as lost or stolen, the more likely you are to get legal protection for lost funds.
- Overdraft
Try to stay out of your overdraft. If the situation does arise that you enter your overdraft, try to pay it off as soon as possible to avoid extra charges. It may also be worth considering a credit card for these transactions.
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