What is a debit card?

When it comes to spending, cash is no longer king. Debit cards reign supreme.

As debit cards are typically linked directly to your chequing account, it’s no surprise they’re the most common type of card in Canadian wallets. When you open a bank account, in the majority of cases, you automatically receive a debit card.

They can be used to make purchases in store, online, and to withdraw cash from your account at an ATM. To learn more about debit cards, read on.

So, what is a debit card?

A debit card is a bank-issued card linked directly to your bank account. They can be used in most stores and restaurants to make purchases electronically, can purchase things online, and can be used at ATMs to take out cash from your account.

Since debit cards are linked to your bank account, you can only spend money that is available in your account at the time of the transaction. They’re similar to cash that way – you can only spend what you have. Unlike cash, though, debit cards don’t take up as much space, you don’t need to worry about loose change, and they are more secure. With debit cards you can also track your spending through your bank statements.

Debit cards look similar to credit cards, but they function differently. The main difference is that credit cards borrow money from a bank that will have to pay back in future, where debit cards draw directly from your chequing account.

Debit cards are more secure than cash because they have built-in safety features. If you lose cash or it’s stolen, that money is effectively gone. Anyone who finds or takes your cash will be able to spend it. With a debit card, your money is protected in a few ways. First, debit cards have a PIN (personal identification number), which is a four-number security code. Second, you can report a lost or stolen debit card to your card issuer to have it deactivated.

Your bank can issue you a new card and can investigate and often refund any fraudulent purchases made on it. Third, debit cards typically have a daily purchase limit, meaning you can only spend a set amount per day – this limit prevents someone draining your account if they find or steal your debit card.

Some debit cards also offer rewards programs, including movie points, airline miles, and cash back.

How do you get a debit card?

You usually receive a debit card when you open an account with a bank or other financial institution. Debit cards are easiest to get as an adult as many banks only open accounts for people that are the age majority where they live (18 or 19 years old, depending on the province or territory in Canada).

However, there is technically no legal age requirement to hold a debit card. This means children and teens can have a debit card, but they will need to be supported by their parents or guardians. It usually comes down to the decision of a parent or guardian whether their children should have a debit card. Some banks require an adult to set up an account in their child’s name – called a custodial checking account or youth bank account – which will come with a debit card.

Youth bank accounts give kids control of their own money, under the supervision of their caregivers. Other banks only allow caregivers to add a child to a joint bank account – meaning their child can have a debit card, but any money they spend with the card will come out of the adult’s account.

How do you use a debit card?

You can use debit cards to make purchases in-person as well as online. You can also use them to withdraw cash from your account at ATMs or from a teller at your issuing bank. After receiving your debit card, to activate it you will be required to set up a PIN and sign the back of it for security.

In-person purchases will require you to present your card and either enter, swipe, or tap your card on a point-of-sale machine to transfer funds from your account to the seller. If you enter your card or swipe it into a point-of-sale machine, you will be required to enter your PIN. Many cards also feature a “tap” function, meaning you can simply tap your card against the machine to complete payment.

There is a purchase limit using the tap feature, which is often $250 or less. When you tap, you do not need to enter your PIN. Once your electronic payment goes through, you should usually receive a paper or email receipt, and your transaction will also appear in your bank statement.

Debit cards don’t usually cost anything to obtain and set up, unlike credit cards which typically have upfront annual membership costs. But that doesn’t mean there aren’t fees to look out for. If you withdraw cash from an ATM that does not belong to your issuing bank, you may be charged a withdrawal fee. Depending on your specific card, there may be a limit on the number of debit transactions you make each month – and if you go over that limit, you can be charged a fee for each additional transaction.

If you spend more than you have in your account, you may be hit with fees for insufficient funds and overdraft management. Finally, if you lose your card or it is stolen, there may be a fee to have a new card created for you.

Debit cards vs prepaid cards

Prepaid cards are another option. At first glance debit cards and prepaid cards seem similar – with both you only spend money you have (unlike credit cards, where you borrow money you need to pay back). They are similar, but they’re not the same thing.

KOHO offers a prepaid reloadable Mastercard that has a bunch of benefits. KOHO is digital-first, meaning there are no tellers, no waiting in line, and no bank branches. With the KOHO prepaid Mastercard, you get cashback on every spend – earning 0.5% cashback on all purchases and as much as 10% cashback with preferred partners. Another difference is that debit cards are typically linked to chequing accounts, and most chequing accounts don’t accrue interest. KOHO’s spending account, however, offers 1.2% interest. And, with the KOHO prepaid Mastercard there are no monthly fees and no minimum account balance requirements you might find with debit cards. Finally, you’re unable to go into debt with a prepaid card as there is no overdraft function – you’re only spending the money you put on the card.

Final thoughts on what is a debit card

Debit cards are an incredibly common financial tool offered by banks and other financial institutions. They offer a wide variety of benefits, they’re easy to get, and they make spending simple and secure. They are safer than cash, are an accepted form of payment almost everywhere, and, because you’re spending your own money from your account, they help you avoid going into debt. There are a lot of debit cards out there (as well as debit card alternatives like the KOHO prepaid mastercard), so be sure to do your research and keep your options open.