Our top picks of timely offers from our partnersMore details
When you hold a checking account with a bank or credit union, you will likely be issued a debit card. This card allows you to make secure and instant purchases in-store or online using money from your checking account to directly pay for purchases, as well as make cash withdrawals from ATMs. Most banking institutions issue debit cards for free.
When you get a debit card, you need to set up a PIN number that you use when making transactions. This adds a level of security. It's important not to pick a predictable PIN like your birthday or address and don't share your PIN number, as those who have this can access your bank account.
Our best selections in your inbox. Shopping recommendations that help upgrade your life, delivered weekly. Sign-up here.
While these thin, rectangular pieces of plastic look essentially the same, they are very different. With a credit card, you are essentially borrowing money from your line of credit, whereas the debit card immediately takes the money from your connected bank account to pay for purchase. For example, if you have $550 in your checking account, and pay for $100 worth of groceries with a debit card, your balance will be $450. The withdrawal is immediately reflected in your current balance.
Credit cards, on the other hand, offer a grace period, which stretches from the date of your purchase until when your account statement is due and can span up to about eight weeks. But if you don't pay your credit card account balance on time and in full, you will be on the hook for hefty interest charges. Interest continues to accrue until you pay off the balance in full (unless you have a 0% APR card). In essence, you could be paying much more for any products or services you initially purchased if you have interest tacked on your balance each month.
Although there are upsides to using a credit card — including the chance to earn rewards and cash back as well as increased fraud protection — there are a few times when it's better to pull out your debit card.
If you're in need of cash, you can use both a debit card and a credit card to withdraw money at ATMs. When you use a credit card to withdraw cash, it's considered a cash advance, and you're immediately charged interest on the transaction (often more than if you just carry a balance month to month). Most financial experts warn against cash advances as they can be very expensive.
If you use an in-network ATM to withdraw cash with your debit card, the transaction will be free. If you're in a pinch and use an out-of-network ATM, you'll likely get hit with a transaction fee from both your bank and the ATM provider. This can be expensive, but not nearly as much as when you use a credit card to withdraw cash.
Many retailers offer the option to add a cash amount for withdrawal to your purchase at the point of sale when you use a debit card.
If you're in a situation where you need cash and can't find an in-network ATM nearby, Ted Rossman, senior industry analyst with Bankrate, recommends popping into a retailer and making a withdrawal with purchase to avoid the ATM fees.
Although this strategy can save you money on transaction fees, you must have the funds available in your checking account to cover both your purchases and the additional cash amount added to your sale. If you overspend, you may be assessed overdraft fees by your bank. (Check out Select's list of the best checking accounts for travelers.)
Some small businesses, online retailers and restaurants will impose a surcharge when you use your credit card to make a purchase, but will exclude debit cards from such fees.
"As much as I love credit card rewards, I wouldn't want to pay a 3% fee just to get 1% or 2% cash back," says Rossman. "If the debit card isn't charged a processing fee, it would be a better choice."
Also, you may want to consider using a debit card rather than a credit card when making an international purchase if you have a credit card that charges foreign transaction fees. Before you travel abroad, double check to see which fee is lower.
If you find yourself struggling to pay off your credit card, using a debit card may be a better way to manage overspending.
"If you have credit card debt, then putting routine purchases on a debit card would make sense in order to avoid going deeper into debt. But that's a bit of a catch-22 because you may not have the money," Rossman says.
If you're paying only a minimum payment on credit card accounts each month, interest continues to accrue on both revolving balances plus any new purchases. "This is part of what gets people into trouble with credit cards," says Rossman. "Those minimum credit card payments can stretch on for a long time and cost you a lot of money in interest."
In general, he says he uses credit cards as much as possible because they offer better rewards programs and better buyer protections (fraud resolution, extended warranties, purchase protection, etc.) than debit cards. "Of course, this strategy only works if you pay your credit card bills in full, because otherwise the high interest rates outweigh the benefits," Rossman adds.
If you have limited credit card opportunities due to poor credit history, you may want to consider a debit card with rewards. Rossman acknowledges that debit card rewards lag significantly behind credit card rewards. "In fact, most debit cards don't offer rewards at all," he says.
One standout is the Discover Cashback Debit Account, which offers cardholders 1% cash back on up to $3,000 in monthly debit card purchases, and The Cash Card (Cash App's debit card), which offers cash back "boosts" up to 15% at certain retailers.
Although some bigger banks like Bank of America don't offer cash-back rewards on any of its debit cards, it does have a program called BankAmerideals, which gives checking accountholders access to benefits such as cash back, coupons, promo codes, discounts and access to unique experiences. You can see all the deals available to you by logging into your account online. You usually have to register for the rewards to kick in.
If you are tempted to overspend, and you are racking up interest on credit cards with high revolving balances and steep interest, a debit card may help you manage your finances as you won't be able to spend more than you have in the linked account.
"It is key to think about what you are using the card for and your overall financial health," says Amy Zirkle, payments and deposits program manager, Office of Consumer Credit, Payments and Deposits Markets with the Consumer Financial Protection Bureau (CFPB). "There are advantages and disadvantages to using both debit cards and credit cards."
The golden rule of credit card use is to pay your balances in full each month. "My best advice is to use a credit card like a debit card — paying in full to avoid interest but taking advantage of credit cards' superior rewards programs and buyer protections," says Rossman. "There are plenty of no annual fee credit cards that offer at least 2% cash back on every purchase."
Ally Bank is a Member FDIC.
- Business checking account or personal account? Here's Why entrepreneurs need to open a business oneJasmin Suknanan
- Get cash back, travel rewards or valuable perks with the best credit cards for couplesJason Stauffer
- Auto loan rejections are at an all-time high — here's how to improve your odds of getting approvedLiz Knueven