What You Should Know About Debit Card Fees

2008-05-12 10:39:11

( Financial )



Functions and Benefits of a Debit Card

Debit cards are negotiable instruments you can use for purchases. Major credit card companies and banks link your debit card with your checking or savings account, or issue a combination debit-credit card. The debit card may also function like an ATM card allowing you to draw money from ATM machines or retailers.

When you use it for purchases, the merchant swipes your debit card. You either enter a PIN code or sign an invoice to acknowledge the purchase, depending on the policy of the issuing bank. It will take about a few seconds for the issuing bank to honor the purchase.

Once the transaction has been approved, the purchase amount is then electronically deducted from your bank balance. When you receive your bank statement, the amount of your purchase will show as a debit against your account balance.

The debit card conveniently lets you make purchases without having to use cash or checks. You can make purchases only up to your account balance, or you can arrange with the issuing bank for a maximum daily purchase limit. The purchase amount is not carried over as a liability in the future unlike with credit cards.

Types of Debit Card Fees

As with Mastercard fees, some banks also charge annual debit card fees. Many banks now charge a few cents to a dollar per purchase transaction, and monthly fees for maintaining your account.

If you sign for the transaction instead of entering a PIN, the issuing bank charges merchant account fees to the store. Consequently, the store will add a portion of the bank charge to your purchase amount.

It may seem that using debit cards costs more than using ordinary checks or plain cash. On the other hand, the bank also charges you for ordering checks as well as monthly account maintenance fees.

Tips for Consumers

If you want to avoid paying debit card fees, ask your bank to issue an ATM card instead. Some merchants still accept these as instruments and you simply swipe and enter your PIN without having to pay extra fees.

Another alternative is to use your checks to pay for purchases. You can show your credit card as identification if it has your photo. Or you can do it the old-fashioned way and show your driver's license.

It is risky to pay for online purchases with your debit card. You could stand to lose much or even all of your account balance if your debit card data falls into the wrong hands. You should use debit cards only with stores that you really trust.

Before even getting a debit card, review the terms and conditions carefully with your banker, especially all the debit card fees that will apply.


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