Debit Card

Updated on June 4, 2024
Article byNanditha Saravanakumar
Edited byAaron Crowe
Reviewed byDheeraj Vaidya, CFA, FRM

What Is A Debit Card? 

A debit card is a payment card that deducts money directly from a consumer’s checking account to pay for a purchase. It functions as an alternative to cash or checks, providing a secure and convenient way to make transactions without carrying large amounts of cash.

Debit card

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Debit cards have reduced the need for carrying physical cash or checks. Prepaid and virtual debit cards are variations of traditional debit cards that are becoming increasingly popular. Its alternative is a credit card, where the bank extends a line of credit to the customer, and the customer pays back the borrowed amount along with interest. 

Key Takeaways

  • A debit card refers to a banking instrument that allows users to make cash withdrawals and cashless payments by directly debiting the funds from their accounts.
  • Also known as check cards, they do not add to the user’s debt or liability.
  • The physical elements of a traditional card include the 16-digit card number, cardholder’s name, CVV code, issue and expiry date, signature bar, debit network logo, issuing bank logo, and an electronic chip.
  • The most popular types include Visa and MasterCard debit cards.

Debit Card Explained 

Debit cards are a widely used banking instrument and provide a convenient alternative to cash. They allow users to access funds from their checking accounts, make purchases, or withdraw cash. In addition, the cards offer added security compared to physical cash, as they are protected by various security measures such as a personal identification number (PIN) and fraud protection systems.

They are typically used for cash withdrawals, point-of-sale transactions, and online payments. They allow cardholders to access funds directly from their checking account and perform transactions without adding to their debt or liability. In addition, unlike credit cards, no interest is charged on debit card transactions, and banks may charge minimal transaction fees and annual maintenance fees.

Debit cards typically require a personal identification number (PIN) to complete transactions. A PIN is a 4-digit or 6-digit number known only to the cardholder and is used to secure transactions. However, some cards also support contactless payments, which allow cardholders to complete transactions without entering their PIN. It can be done at contactless-enabled terminals or point-of-sale machines.


These are the physical components of a debit card that are engraved on it:

  • Debit Card Number: A unique 16-digit number is one of the most important elements. It is important to note that the card number is not the same as the cardholder’s account number.
  • EMV Chip: A chip that helps authenticate the user by storing the user’s identification number (PIN). The cardholder’s PIN must match the information stored on the chip to validate the card.
  • CVV: A 3-digit (or sometimes 4-digit for American Express cards) number that helps verify that the card is actually in the cardholder’s possession when performing a transaction.
  • Issue And Expiry Date: Indicates when the card was issued and when it will expire. Some online payment gateways require this information to process transactions.
  • Cardholder Information: Includes the name and signature of the cardholder. The cardholder is required to sign the signature bar on the card.
  • Magnetic Stripe: A traditional card feature that helps electronic devices, such as card readers, identify the card and process transactions.
  • Hologram: Indicates a legally valid card and helps secure payment processing.
  • Logo: Displays the logo of the issuing bank and the debit network.


There are several types of debit cards, including:

  • Traditional Debit Cards: These are linked to the customer’s checking account and are used to withdraw cash and make point-of-sale transactions.
  • Prepaid Debit Cards: These are reloadable cards where the user can load a certain amount of money, which can then be used to make transactions.
  • Virtual Debit Cards: These are digital-only cards that can be used to make online transactions and do not have a physical card.
  • Employee Debit Cards: These are issued by employers to employees for company expenses, and transactions are directly debited from the employer’s account.
  • Government Debit Cards: These are issued by government agencies to disburse benefits, such as unemployment benefits, to the citizens.


One example is the PayPal Business Debit Mastercard. With the PayPal Business Debit Mastercard, cardholders can quickly access their funds. Using the PayPal Business Debit Mastercard, they can withdraw cash from ATMs and make payments online or offline, wherever Mastercard is accepted. Furthermore, daily withdrawal and transaction limits of $400 and $3,000, respectively. When traveling overseas, be prepared to pay $1.50 for domestic and international ATM withdrawals and 1% in foreign transaction fees.


  • No need to carry cash: It enhances the user’s convenience by eliminating the need to carry liquid cash. 
  • Stolen card protection: If it is stolen, the cardholder can report it to their bank and request a replacement card. However, there is no guarantee that the stolen funds can be recovered, as it depends on various factors such as the type of fraud, the timing of reporting, and the bank’s policies.
  • No debt or interest: Since the amount is debited from the user’s savings, the transactions do not incur any debt or interest, like a credit card. Moreover, some banks pay the cardholders monthly interest for the deposits they have made with the bank, which can be used by the latter.
  • No creditworthiness requirement: It doesn’t function based on the customer’s creditworthiness, as the amount is debited from their savings.
  • Lower fees: Debit card users do not incur high annual fees like a credit card. However, the fees can vary depending on the issuing bank and the card type.
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Debit Card vs Credit Card vs ATM Card

Debit, credit, and ATM cards look identical and perform similar functions. But they differ greatly.

First, let’s look at the differences between debit and credit cards.

Debit CardCredit Card
Money is deducted from the user’s savings account.The bank makes the payments, and the user pays the bank later.
Incur fewer fees or debt.Incurs interest and other fees.
It can be used for withdrawals and payments.It can be mainly used for payments.
Doesn’t impact the credit score.Has a huge effect on credit scores.
Fraud protection is comparatively less.Higher fraud protection.

Here are the key differences between a debit card and an ATM card:

Debit CardATM Card
It can be used for point-of-sale transactions, online purchases, and cash withdrawals at ATMs.Used primarily for cash withdrawals at ATMs.
Some banks offer rewards or cashback for using the card.Generally does not offer additional features or rewards compared to a debit card.

Frequently Asked Questions (FAQs)

Where should you never use a debit card?

It should not be used for online purchases from unsecured websites or merchants with poor security systems, as this increases the risk of fraud. Additionally, using a debit card for automatic recurring payments for services is not recommended, as unauthorized transactions may occur, and it may not be easy to recover the funds. In countries with high levels of card skimming and cloning, it is recommended to use a credit card instead.

How to keep online debit card transactions secure?

To keep online transactions secure, it is important to use a secure and encrypted connection while purchasing and to monitor the account for any suspicious activity frequently. Also, creating strong passwords and avoiding sharing personal information can help prevent unauthorized access to the account.

Where is the security code on a debit card?

The security code is usually a 3-digit or 4-digit number that is not printed on the card and is not part of the card number. It is often referred to as the CVV (Card Verification Value) or CVC (Card Verification Code). The security code can typically be found on the back of the card, near the signature strip. Some cards may also have the security code printed on the front.

This has been a guide to what is Debit Card. We compare it with credit and ATM cards and explain its example, benefits, types, and components. You can learn more about finance from the following articles –

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