Credit Cards » Prepaid & Debit Cards

How Do Debit Cards Work?

Laura Agadoni — Wed, 27 May 2015 01:25:06 +0000

As more and more people use debit cards, a natural question many have is “How do debit cards work?” A nationwide study conducted in 2011 by TSYS, a global payment processing company, found that people preferred using debit cards more than any other payment type, including cash, which was the second most preferred payment method. People prefer debit cards because they are more convenient to carry than a wad of cash or a big checkbook is. Debit card transactions are also fast. If you’ve ever been behind a check writer at a grocery store, you appreciate the quickness of the debit card swipe. It’s also safer to carry a debit card; cash is often stolen.

Accessing Cash

You can get cash by using a debit or a credit card, but they are very different transactions. When you want cash and you use a debit card, you are withdrawing money you already have in your bank account. But when you want cash through your credit card, called a cash advance, you are taking out a loan. You must pay back the loan, and you will typically pay a high interest rate for the transaction, making getting cash from your credit card an expensive option. It costs you nothing to withdraw cash from your own bank using a debit card.

Debit Card Fees

Sometimes fees are associated with debit cards when you use them.

You pay a fee when you withdraw cash with your debit card at an ATM that is not associated with your bank. According to a Bankrate survey it costs you an average of $2.60 every time you use an out-of-network ATM. Your bank might also charge you for using an out-of-network ATM — an average of $1.53. If that happens, you spend $4.13 every time you withdraw cash from an ATM that is not your bank’s.
There are two ways to use your debit card for purchases: you can use your debit card as a credit card or as a debit card. Using your PIN means you run the card as a debit card, and signing the receipt means you run the card as a credit card. Some banks charge a fee when you use the debit card for purchases when you enter your PIN instead of signing for the card.
If you make a purchase using your debit card for more than what you have in the account, you will be charged a fee if you opted to have overdraft protection. The bank, in that case, would cover your overage, but it would charge you a fee for doing so. The median charge is $34, and most overages are for less than $25, according to the Consumer Financial Protection Bureau

Daily Withdrawal Limits

You can withdraw only a limited amount of money each day from an ATM using a debit card. Each bank has different limits, and different customers could have different limits, too. The usual limit is no more than $1,000 a day. And, of course, you cannot withdraw more than what you have in the account. So now, you should have your question of how debit cards work answered.

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Debit Cards Versus Credit Cards When Renting A Car

Laura Agadoni — Sat, 11 Apr 2015 13:22:22 +0000

If you are wondering which is better when renting a car between debit cards versus credit cards, credit cards are. Although you can usually rent a car with a debit card, most, if not all, rental car companies prefer customers to use a credit card. They are, after all, letting you drive away with an asset that’s worth at least $20,000 or so, and a credit card provides assurance that they can recoup money for any damages that might happen while you have the car. You might need to jump through some extra hoops to use your debit card, but if that’s all you have, and if you need to rent a car, it is possible. Here’s what you need to know.

Rental car policies vary. Some rental car companies are better about accepting a debit card than others are. It’s a good idea to conduct an online search for the most friendly companies. Rent A Wreck, for example, states on its website that most of its locations accept debit cards with the Visa or MasterCard logo. The bigger rental companies, such as Avis, might not accept debit cards in some locations. And if they do, there are usually certain restrictions.
You might need to prove you are traveling. Many car rental companies won’t rent to a local person with a debit card. They are typically afraid you might skip town with their car.
You might be subject to a credit check. If you have bad credit, you might not want to try to rent a car with a debit card, particularly at a major rental car company. Every time your credit is pulled, it shows up on your credit report, and too many inquiries can lower your score.
A rental car company might put a block or a hold on your debit card account for the rental cost plus some extra, typically $100 to $500. You won’t have access to your money during the holding period, which generally ends when you return and pay for the car. However, the holding period could last for up to 15 days after you pay, according to the Federal Trade Commission.
Debit cards don’t cover rental car insurance. When pondering debit card vs. credit card protection, credit cards win. Most major credit cards offer some type of car rental insurance. They typically cover damages that aren’t covered by your primary auto insurance policy. But a debit card offers no insurance. It’s a good idea to call your primary auto insurance provider for advice on whether to buy extra insurance from the car rental company.

There’s no question that renting a car is easier with a credit card, so if you have a choice between debit cards versus credit cards, choose a credit card. If you don’t want to deal with the hassles of trying to rent a car with a debit card, consider taking out a secured credit card, which works just like any other credit card, even at rental car companies. The only difference is that you must deposit money to the secured card, and that becomes your credit limit.

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What You Need To Know About Credit Cards And Debit Cards

Laura Agadoni — Thu, 09 Apr 2015 12:58:14 +0000

Credit cards, debit cards and prepaid cards look alike, but they are very different. The debit card, a card that looks like a credit card but that links to your checking account, has been around since the 1970s. It started to become popular when ATMs appeared throughout the country in the 1980s and 1990s. People like having a debit card because it allows them to withdraw cash from their bank accounts easily, and they can pay for items just by swiping their debit card at the register. A prepaid debit card might look like a debit card, but it is not the same because it does not link to a bank account. People have to put money onto the card to use it. Prepaid debit cards have been gaining in popularity in recent years.

Credit Cards, Debit Cards and Prepaid Debit Cards Are Not the Same

With both debit cards and prepaid debit cards, you need to have money to buy items. This is unlike a credit card where you are essentially taking out a loan by buying items and paying for them later.

Overdraft Protection

Because your debit card links to your bank account, you can opt for overdraft protection. That way, if you spend more money than what you have in your bank account, your bank can cover the overage. You would need to pay back the overage, and the bank charges a fee for this service. A prepaid debit card does not come with an overdraft protection option. You can use only the money that you have loaded onto the card and no more.

How a Prepaid Debit Card Works

When you open a prepaid debit card, you decide how much money to put on it. When you buy something with the prepaid card, the money you loaded onto it is subtracted from the balance. You can keep reloading the card as often as you like.

Benefits

Prepaid debit cards are ideal for people who do not have a checking account but who like to shop online, pay bills online, make hotel reservations, rent a car or do anything else that requires a credit or debit card.

You can have your paycheck deposited to your prepaid card, which is more convenient than cashing a check.

A prepaid card is also a good option for people with poor credit. You don’t have to qualify for a prepaid card because you load your own money onto it.

Prepaid debit cards make a nice gift card to give to someone.

Parents can use a prepaid debit card for teens as a tool to teach their kids how to manage their money. For example, a parent might want to give a prepaid debit card to his or her teenage driver to use for gas. The parent would load a certain amount of money for gas on the card for the month, and the teenager would then need to plan accordingly.

Fees

Fees are involved with prepaid cards. How much the fees are and what the fees are for vary. Typical fees associated with prepaid cards are for card activation, monthly maintenance, ATM withdrawal and ATM balance inquiries. Some cards waive some fees if your balance is high enough or if your paycheck automatically deposits to the card. Each card lists the fee details on the card or on the card packaging. Learn what they are before your choose one.

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Credit Card Vs. Debit Card When Trying To Get Out Of Debt

Laura Agadoni — Thu, 19 Mar 2015 19:21:26 +0000

Credit cards can be wonderful financial tools when used responsibly, but if you let your spending get out of control, and you then become overwhelmed with credit card debt, you need to start thinking of alternatives if you want to be debt-free. It’s the old credit card vs. debit card debate. One popular idea, and one that financial guru Dave Ramsey likes, is to stop using your credit card and switch to a debit card instead. You can use a debit card everywhere you were using your credit card, but the debit card forces you to pay for everything in cash.

Linked to Your Bank Account

A debit card links to your bank account. Therefore, you can spend only what you have in your account. You will not go into debt, incur interest or have to deal with possible late fees when you use a debit card. If you don’t keep accurate records and don’t know exactly what you have in your bank account, however, you run the risk of spending more than what you have. If you have overdraft protection, your bank covers the overage. But you must pay the overage back plus a fee, typically around $34. If you don’t have overdraft protection, your transaction will be declined. Neither outcome is desirable, so always keep a record of what you have and what you spend.

How to Make the Switch

It might sound like a great idea to pay for everything using cash in the form of a debit card, but it’s not always easy to make that happen. You probably need to make some sacrifices. Paying in cash forces you to buy only items that you really need or can truly afford. It’s much easier to whip out a credit card and worry about how or even if you can pay for the item later, but that’s what likely got you into debt in the first place. You’ll need to adopt a different mindset: if you don’t have the money, you are not buying it.

How to Get Out of Credit Card Debt

Look at all your debts, and focus on paying one off by paying as much as you can afford while you pay the minimum on the other debts.
The snowball method has you pick the card you owe the least on to give you that sense of accomplishment needed to keep going.
You then tackle the next biggest debt and so on. Paying off the cards starts collecting speed, like a snowball.

Another method, and one that make the most mathematical sense, is to pay off the card with the highest interest rate first. Once you have paid off that debt, apply what you were paying to the card with the next highest interest rate (plus the minimum you were already paying) until that second debt is gone. Keep doing this until all the debts are paid. You are simultaneously paying down debt while not creating any new debt since you are using debit cards for all new purchases.

Advice

If you use a debit card, get in the habit of monitoring your account daily. That’s the best way to keep track of what you can spend and to catch unauthorized usage or debit card fraud right away. Once you are free from credit card debt, ask yourself again about the credit card vs. debit card. You can continue to use only a debit card, or you can start using your credit card again, but only if you will pay off the balance at the end of each month.

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Credit Cards Vs. Debit Cards: Which Is Right For You?

Laura Agadoni — Tue, 17 Mar 2015 18:04:16 +0000

There’s much to consider in the debate between credit cards vs. debit cards. It’s often difficult to tell any difference between a prepaid debit card, a debit card and a credit card just by looking at them. But the differences between them are great. The biggest divide, however, is between both types of debit cards and credit cards. Both debit cards work with money you already have, so they are essentially different methods of paying in cash. Credit cards, on the other hand, allow you to borrow money, which you can pay back in full when your statement arrives or pay back in installments.

Building Credit

If you have bad or no credit, your goal is probably to get a high credit score so you can qualify for and get the best interest rates on credit cards and other types of loans. Meanwhile, you might need a piece of plastic to pay bills online, shop online, rent a car or reserve a hotel.

Prepaid and debit cards: Both prepaid debit cards and debit cards come in handy — you can conduct all transactions with them that you typically need a credit card for. However, they do nothing to help your credit score because they do not report to the credit bureaus.

Secured credit card: If building your credit score is your goal, consider taking out a secured credit card. Secured credit cards build credit history if they report to the credit bureaus. They work the same way as a prepaid debit card — you must load your own money onto them. The difference is that many secured credit cards report your activity to the credit bureaus, but prepaid debit cards do not.

Protection

If you lost your card or someone stole it, you get the best protection with a credit card. All your money could be taken from your bank account if someone stole your debit card, and you’d have to wait for your money to be returned — that is, if you qualify. Here’s the breakdown of what to do if you have a lost or stolen card situation, according to the Federal Trade Commission.

Credit card: Report the lost or stolen card as soon as possible. Then, you are not responsible for any transactions that happen after you report the episode. The most you stand to lose from a lost or stolen credit card incident is $50. That’s the maximum liability you can incur for unauthorized use of your credit card.

Debit card: It’s essential that you report the lost or stolen card as soon as possible. You are not responsible for the unauthorized transactions if you report it before anyone uses it. If you report the card lost or stolen after someone else has used it, what you are liable for depends on how fast you reported the incident. If you report it lost or stolen within two business days, your liability is $50. If you report the incident between two and 60 calendar days, you could be liable up to $500. If you wait longer than 60 days, you could lose and not recover all the money that was taken from the account.

Prepaid debit card: If this card is lost or stolen, you lose whatever money you had loaded onto the card. In addition, the Federal Deposit Insurance Corp. might not insure the money you have on this card. Some cards have this protection, and some do not. This would affect you if your card issuer became insolvent. If that happened, and your card did not have FDIC insurance, you would lose your money.

Disputes

If you have a problem with an item you bought from a store, with a service you paid for, or if you noticed a fraudulent charge, there is an easy process in place to dispute the purchase when you use a credit card. You simply click on the item you dispute if you use online banking or phone your credit card company if you prefer to speak with someone, and your credit card issuer looks into the dispute immediately. But you don’t have that sort of easy dispute process when you pay using a prepaid or debit card. You would need to meet certain bank conditions and jump through hoops to try to dispute the purchase.

After considering all the options, you should have picked a winner in the debate between credit cards vs. debit cards.

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How To Get A No Fee Prepaid Debit Card

Laura Agadoni — Sat, 14 Mar 2015 17:02:02 +0000

If you haven’t heard, prepaid debit cards are the new “it” card, the new way people are carrying their plastic. It was bound to happen; Lil Wayne even rapped about one: “All in one swipe.” People like prepaid debit cards because they can use them everywhere they can use a credit card, but they don’t need to be approved to get one. They also like prepaid cards because they aren’t tied to a bank account as standard debit cards are. You choose how much money to put on a prepaid card, and you can even have your paycheck automatically deposited to one. But not all prepaid cards are equal; you need to shop around to get the best deal for you, such as a no fee prepaid debit card.

Examples of Some Good Cards

The top five prepaid cards of 2014, according to Top Ten Reviews, are the Mango MasterCard, the Kaiku Visa, the NetSpend Premier MasterCard, the AccountNow Gold Visa and the Vision Premier Visa.

Mango stood out because of extra features it offers, such as the ability to load your card from PayPal.

Kaiku offers free text messages to let you know your balance.

NetSpend offers the most ways to reload the card.

AccountNow offers a program for children ages 14 and older that lets parents track the transactions.

Vision offers cash back when you buy gas.

Beware of Hefty Fees

There is a downside, however, to prepaid debit cards: fees. All prepaid debit cards have them in one form or another — some more so than others do. If you pick the wrong card, you could wind up paying hundreds of dollars in fees a year. The way to select a card is to decide how you intend to use it. Pick one that offers you the features you need and that has the lowest fees.
Here’s some examples so you can compare:

The 2014 READYdebit Visa Prepaid Card, Select Plan charges many fees: a $9.95 monthly maintenance fee, a $9.95 card activation fee and a $2.25 ATM withdrawal fee.

The American Express Serve is practically a no fee prepaid debit card. The Serve has no activation fee and charges no fees for cash reloads if they are in network, no ATM in network usage fee, no online bill pay fee and no card replacement fee. It does charge a low $1 monthly maintenance fee, which is waived if you use direct deposit or load at least $500 a month on the card.

The American Express Bluebird is also a no fee prepaid debit card, except for a $2 ATM withdrawal fee that is waived if you withdraw with a qualifying direct deposit at any in network ATM, which also includes all Money Center Express machines at Walmart.

Rewards

Prepaid debit cards are not famous for offering rewards cards as credit cards are, but if you shop around, you can find a prepaid debit card that earns rewards.

The 1-2-3 Rewards prepaid card from Visa lets you earn free groceries when you use the card. You can also get discounts when you shop at selected retail stores and gas stations.

The AccountNow card (mentioned above) offers various rewards that you can see when you log into your account. You can even earn cash when you use your card at selected locations.

The Giant Eagle fuelperks! Visa card lets you earn money toward gas purchases when you shop at Giant Eagle supermarkets, which are available in Ohio, Maryland, western Pennsylvania and north central West Virginia.

These are just some examples. The important point to take away is to compare prepaid debit cards before you get one. The right card can serve as a wonderful asset for you, and the wrong card could cost you too much money.

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