What Is a Debit Card, and How Does It Work? A Practical Guide for Beginners

Ashley Ferraro, Consumer Operations
Aug 28, 2023
 • 
10
 Min Read

According to Forbes’ Advisor 2023 Banking Survey, 57% of respondents prefer using a debit card as their primary payment method. Despite their popularity, it’s easy to confuse debit cards with similar financial instruments, such as credit or prepaid cards.

This guide will cover the essential information you should have about debit cards, including:

  • What is a debit card?
  • How is a debit card used?
  • What is the funding source of debit cards?

You will also learn how debit cards compare to other payment cards to determine which option fits your needs.

What Is a Debit Card, and How Is It Used?

A debit card is a payment card linked to your checking account that allows you to use your existing balance to pay for goods and services. Unlike credit cards that involve borrowing money for transactions, debit cards employ your on-hand funds only. When you use your debit card, the money comes from the associated deposit or bank account in a physical or online bank or a credit union. After each transaction, your bank balance will be debited (i.e., deducted) from the corresponding account.

Debit cards may also be referred to as bank or check cards. They are sometimes mistakenly called ATM cards as debit cards can be used at ATMs to access various banking services, like withdrawing cash or checking the bank balance. Still, an ATM card is a separate financial product designed for withdrawing money from cash machines, while a debit card is a multifunctional payment instrument.

A close-up shot of a person swiping a payment card through a POS machine

Source: Mark OFlynn

We’ll explore the four core aspects of using debit cards:

  1. What can you do with a debit card?
  2. How much money is on a debit card?
  3. How do you use a debit card for in-store and online payments?
  4. How do debit cards work technically?

What Can You Do With a Debit Card?

A debit card is a cash alternative that can be used for all types of transactions. You can use a debit card for:

  • In-store purchases—Most retail stores accept debit cards in standard networks like Mastercard® or Visa®.
  • E-commerce transactions—Like credit cards, you can use debit cards on most vendor websites. They are also typically accepted for online hotel reservations[1].
  • Bill payments—You can use your debit card to pay your utility bills, insurance premiums, and subscription services online.
  • Cash withdrawals at ATMs—With a debit card, you can easily access an ATM to withdraw cash, transfer money, and pay bills.
  • Fund transfers—You can use debit cards to send money to family, business vendors, schools, etc. Many online transfer services allow debit card deposits.
  • Mobile wallet payments—You can load a debit card as a funding source to mobile wallets like Google Pay® and Apple Pay®.

How Much Money Is on a Debit Card?

A debit card has the same balance as the associated checking account. Banks typically do not have a spending limit for debit cards.

Still, they may impose limits[2] on how much money you can withdraw or spend in a day, primarily to manage cash flow and minimize card abuse in the case of theft. You can check your balance by visiting an ATM, asking a bank representative at your nearest branch, or using internet banking.

How Do You Use a Debit Card for In-Store and Online Payments?

Making an in-person or online payment with a debit card is a straightforward process, explained below:

In-Store Payment

Using a debit card to pay at a store is a card-present (CP) transaction typically unfolding in one of the following ways:

  1. Swiping a card’s magnetic stripe
  2. Inserting an EMV chip-enabled card at a designated slot 
  3. Tapping the card at a contactless payment terminal


You may have to enter your PIN or sign the slip to authorize the transaction.

Online Payment

Using a debit card online is categorized as a card-not-present (CNP) transaction, implying that the card was not physically offered at the time of purchase. By that definition, over-the-phone and mobile wallet payments are also CNP transactions.

To pay with a debit card online, you should:

  1. Choose “Pay With a Debit Card” or a similar option at the checkout screen.
  2. Enter the following card credentials in the relevant fields:
    - Card number
    - Expiration date
    - Security or CVV (Card Verification Value) code


Online card transactions are typically authenticated with the help of a PIN code or an OTP (one-time password).

For both in-store and online payments, debit card transaction processing usually takes seconds, but it may take up to 24 hours for the merchant to receive the funds.

Source: Pavel Danilyuk

How Do Debit Cards Work?

Whether you use a debit card online or in person, the transaction is processed the same way. Here’s what happens when you use your debit card[3]:

  1. When you use your card in an online or physical store, your bank is electronically notified of the purchase request. The relevant card processing network—like Visa or Discover®—also receives the request. Your card network checks whether the card is valid while also ensuring that it hasn’t been reported as lost or stolen to reduce the possibility of fraud.
  2. The bank checks if you have enough money for the transaction, deciding to accept or decline the payment request. If the transaction is approved, the bank generally designates the specific sum in your checking account and holds it until completion.
  3. The payment processor gets approval from the bank and proceeds to complete the transaction with the validated data.
  4. Once the transaction is complete, the bank removes the money from your account and transfers it to the receiving (merchant's) bank.


Like credit cards, debit cards also accrue transaction processing fees, which the merchant is typically responsible for paying. If you were to receive a refund for the transaction, the amount will typically be credited to your checking account.

What Does a Debit Card Look Like?

Debit cards and credit cards look the same. They come in the form of a rectangular plastic or metal card with the following components:

Front of the Debit Card
- Bank (or card issuer) logo
- Debit card number (typically 15 or 16 digits long)
- Cardholder’s name (printed or embossed)
- Card expiration date (usually in the MM/DD format)
- Payment network brand logo (Mastercard®, Visa®, etc.)
- Smart chip (only in chip-enabled cards)

Back of the Debit Card
- Black, magnetic stripe (holding card info for card readers)
- Security or CVV code
- Signature panel (may or may not contain your signature)
- Valid hologram (an added security layer)
- Customer service number and/or other contact details


Many banks and card issuers also offer digital or virtual debit cards that have no physical form but only exist electronically.
These cards look like regular cards on the screen and contain more limited details, including a card number, security code, expiration date, and the network logo.

What Are the Different Types of Debit Cards?

Depending on the available features, you’ll find several types of debit cards, such as:

  • Conventional debit cards—They are the traditional debit cards issued by banks and credit unions.
  • Electronic Benefits Transfer (EBT) debit cards—EBT cards function similarly to conventional debit cards, but they’re offered under a government assistance program. The funds loaded on EBT cards may have limited use. For instance, if you received an EBT card under the Supplemental Nutrition Assistance Program (SNAP), you can only use the card at select grocery stores.
  • Employee debit cards—Companies and entrepreneurs issue employee debit cards under a single business account so their staff can use office funds for work-related expenses.
  • Digital debit cards—A digital debit card is a digital copy of your actual debit card that can be accessed via your bank’s designated app or website.
  • Virtual debit cards—Virtual debit cards also exist electronically but don’t have the same credentials as your actual debit card to which they are linked. They have temporary and unique card numbers, CVV codes, and expiration dates. The purpose of a virtual card is to mask your actual payment data on merchant websites and help protect your funds and personal details from cyberattacks and security breaches. If your virtual card data is compromised on a website, the hacker will not have access to your real debit card information. Some banks offer virtual card services to their existing customers. You can also request these cards from independent card providers like Privacy.
A person using a virtual card stored on the phone to pay at a contactless payment terminal

Source: Karolina Grabowska

How Does a Debit Card Compare To Other Payment Cards?

One of the biggest benefits of using a debit card is its convenience. You don’t have to carry cash or write checks when you pay for goods or services. While a debit card gives you considerable versatility, is it as good as other popular payment cards—prepaid and credit cards? Find out below.

Debit Cards vs. Prepaid Cards

A prepaid card is a stored-value card loaded with a fixed sum. Unlike a debit card, it’s not connected to a checking account. You can use the card until you exhaust its balance, although many prepaid cards are reloadable with cash, payroll checks, etc.

Prepaid cards are useful for unbanked customers and users who want to shop within a budget. While these cards work with most vendors, they can be expensive. A regular Mastercard or Visa prepaid card can potentially come with a variety of fees, such as:

  • Transaction fees
  • Load and reload fees
  • Inactivity fees
  • Balance inquiry fees
  • ATM withdrawals fees
  • Monthly maintenance fees

Debit Cards vs. Credit Cards

A debit card allows you to pay with your funds, while a credit card enables you to pay with borrowed money that you must repay later with interest—the credit card issuer loans you funds up to a fixed limit throughout the billing cycle. Once the cycle ends, you will receive a credit card statement and will have to settle your dues accordingly.

Compared to debit cards, credit cards allow you to postpone payments. Unfortunately, you can land in a predicament if you’re unable to repay your credit card debt, leading to[4]:

  • Impaired credit score
  • Cancellation of your card
  • Lawsuits (if you fail to respond to collection calls)
  • Overtaking or freezing of your bank account by authorities

Overall Advantages of Debit Cards

Noteworthy benefits of paying with debit cards include:

  • No interest charges—Using a debit card does not entail interest charges because you pay with funds from your checking account.
  • Low or no credit score—You need a high credit score to be eligible for credit cards, but debit cards have no such requirement since you are not borrowing any money.
  • Minimal fees—Unlike prepaid cards that can come with substantial fees, debit cards have minimal additional charges. The costs will vary depending on the issuing bank and the card type. You usually pay for annual maintenance, card replacement, and overdraft costs.
  • Fraud protection—Debit cards offer protection against fraud, provided you act timely. If you report a stolen or lost card immediately before any fraudulent charge has been made, you generally won’t be held responsible for unauthorized card use. Your liability will generally be limited to:
    - Up to $50 if you report the loss or theft within two business days
    - Up to $500 if you report within 2–60 business days
    - Potentially unlimited if reported after 60 days

Note that this is the worst-case scenario and that most banks have more lenient liability rules. Still, online shopping carries other risks, including identity theft or sensitive info leaks, so you should be reasonably cautious. If you want to make your online card transactions safer, start using Privacy Virtual Cards.

Enjoy Seamless and Carefree Online Purchases With Privacy Virtual Cards

A debit card is connected to your bank account, so protecting your card information from malicious parties is crucial. While keeping your card physically safe is straightforward, there is a considerable risk of your credentials leaking when you use them online. In 2022 and 2023, popular brands like DoorDash and Uber reported major data breaches, exposing millions of records to hackers.

Using virtual cards is a practical way to mask your actual card details on merchant websites, and Privacy, a Better Business Bureau® accredited company, is among the most reliable virtual card providers in the market.

A mini shopping cart with a wad of cash next to an open laptop

Source: Karolina Grabowska

Privacy offers virtual cards with randomly generated card credentials linked to your debit card or bank account. Privacy Virtual Cards are easy to set up and can be used for online payments. Registered with the Mastercard or Visa network, they are accepted by most local or global vendors that take U.S. credit or debit cards.

Privacy Cards—Security and Convenience

You can generate two types of Privacy Cards:

  1. Merchant-Locked Card—Privacy’s Merchant-Locked Card locks to the first vendor you use it at. The card can be used multiple times with the same merchant but will be declined if used anywhere else, reducing the risk of card abuse if the merchant’s website is compromised.
  2. Single-Use Card—If you need a disposable virtual card that closes after one transaction, create a Privacy Single-Use Card. Since it closes almost immediately after the first transaction is made, it would be rendered useless to a potential hacker.


You can close, pause, and unpause Privacy Cards whenever you need.
The feature is helpful for dealing with sneaky subscription merchants because all charges get automatically declined if you pause or close your Privacy Virtual Card.

You can create Privacy Virtual Cards by signing up in a few simple steps. The service is available via any browser, but you can also install Privacy’s Android or iOS app to create and manage virtual cards on your phone.

If you shop on e-commerce websites frequently, you can install the Privacy Google Chrome, Firefox, or Safari extensions. The browser extension improves and speeds up your checkout experience by:

  • Auto-filling the card details for you
  • Creating new virtual cards instantly during checkouts

Privacy Empowers You With Better Control Over Your Money

Besides offering a safe and seamless checkout system, Privacy provides numerous features to help you stay in control of your money. For example, you can set every Privacy Card with a fixed budget. 

With in-built limits on every card, you can easily prevent overspending, especially when sharing the card with your child or another close family member. The feature also reduces the likelihood of a subscription service adding new charges.

Privacy sends push notifications whenever your card is used or declined, helping you recognize fraudulent activity and keep up with your expenditures. Use your account dashboard to track your virtual cards with ease.

You can also integrate your Privacy account with 1Password for free and manage your payment cards and passwords from one secure online vault.

Requesting a Privacy Card—Requirements

Privacy Cards are available to most U.S. residents over 18 who sign up for the service. Here’s what you have to do:

  1. Visit the signup page
  2. Enter the details necessary to verify your identity
  3. Request a Privacy Card
A close-up shot of a woman holding a debit card while browsing an e-commerce website

Source: Kindel Media

You can create up to 12 Privacy Cards per month for free. If you opt for a paid tier, you can:

  • Generate up to 60 virtual cards every month
  • Earn 1% cashback on eligible transactions totaling up to $4,500 monthly

References

[1] Sally French. NerdWallet. https://www.nerdwallet.com/article/travel/hotel-without-credit-card, September 13, 2022
[2] Sophia Acevedo. Insider. https://www.businessinsider.com/personal-finance/atm-withdrawal-limits, December 23, 2021 
[3] Emily Norris. Investopedia. https://www.investopedia.com/ask/answers/050415/what-happens-when-my-bank-account-debited.asp#, May 31, 2023
[4] Scott Schaefer. Hoyes Michalos. https://www.hoyes.com/blog/unpaid-credit-card-debt-what-are-the-consequences, sourced, June 2023
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