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When you think about debit cards, you likely think about the card your bank provided when you opened your checking account. But there are other forms of these useful tools. Debit cards, including prepaid cards, were used in 86.4 billion transactions in the U.S. in 2018, accounting for $3.1 trillion in spending, according to Federal Reserve data.
How Do Debit Cards Work?
Debit cards allow you to access money you have stored in a financial account, such as a checking account, money market account, prepaid debit account or an account managed by a government agency.
Depending on the type of debit card you have, you may be able to use it to make purchases or to withdraw money from an ATM. You can typically only spend or withdraw up to the balance in the connected account, though some financial institutions may allow users to overdraw their accounts—for a fee.
Debit cards are distinct from credit cards, which allow cardholders to borrow money to make purchases they can pay off at a later date (potentially with interest).
What Are the Different Types of Debit Cards?
There are four types of debit cards, and each one works differently. They typically have the same physical appearance: a wallet-sized plastic card with numbers embossed on the surface, a magnetic strip on the back and possibly an electronic chip on the front of the card. You may not be able to discern the type of debit card simply by looking at it, so make sure you understand how it works before you use it.
- Standard debit cards: This type of card is what you would normally think of when you picture a debit card. It's tied to a checking or money market account and allows you to make payments online and in-person, as well as make withdrawals from your account at a bank or ATM.
- ATM-only cards: ATM-only cards are similar to standard debit cards in that they're tied to a checking or money market account. You may also get an ATM card with some savings accounts. However, there are more limitations on this type of debit card than with a standard card. You can only use this type of card to make withdrawals from your account via an ATM.
- Prepaid debit cards: Prepaid debit cards are tied to a financial account you own, but the account isn't a traditional bank account like what's attached to a regular debit card. Prepaid debit cards need to be "loaded" with money before you can use the card to make purchases or withdraw cash at an ATM. Load options can vary from card to card, and may result in a fee. Some prepaid debit cards allow overdrafts, but it's not a universal feature.
- Electronic Benefits Transfer (EBT) cards: EBT cards are issued by government agencies to provide assistance to the cardholder. For example, people who qualify for the Supplemental Nutrition Assistance Program (SNAP) receive an EBT card they can use to purchase certain eligible goods with money that's loaded onto the card once a month. Only the government agency that administers the EBT card can load money onto the account, and users are restricted from using it for non-approved purchases. They also can't take cash withdrawals from the account like you can with other types of debit cards.
Which Type of Debit Card Is the Best?
There's no best type of debit card because each serves a different purpose. For example, if you have a checking account, you might receive a standard debit card and an ATM-only debit card.
You can use the standard debit card for purchases and ATM withdrawals, so it might not make sense to carry around the ATM-only card. But if you don't regularly use a debit card to make purchases, you may decide to carry the ATM-only card to make it more difficult for thieves to use it if they steal your wallet or purse.
Prepaid debit cards can be beneficial for consumers who can't qualify for a traditional bank account or who prefer to use a specific prepaid card because of its features.
And if you qualify for an EBT card, that's the only way you'll be able to access your benefits.
With that in mind, you can compare your different options for standard debit cards to determine which account is right for you. For example, some banks offer cash back or other rewards when you make purchases with your debit card.
The Axos Bank Cash Back Checking Account offers 1% back on signature-based purchases up to $2,000 per month when your balance is above $1,500. In contrast, the Cheese Debit Card offers up to 10% cash back, depending on where you use your card.
Also, prepaid debit cards may offer similar benefits, though you'll want to also consider fees, which can be higher than what you'd pay with a standard debit card.
If you use a standard debit card regularly, consider shopping around and comparing different debit card options to determine if you should switch banks to take advantage of rewards or other perks.
The Bottom Line
Understanding the different types of debit cards out there and how you can use them can help you determine which one is right for you and when.
While competition between the different types of debit cards is minimal because they have different purposes, you may benefit from comparing standard debit cards and prepaid debit cards to see if you can get more value out of your everyday spending.