What is a debit card
In addition to credit cards, banks issue a second type of card – debit cards. In terms of the number of cards issued by banks each year, debit cards are inferior to credit cards. With complete external similarity, with a similar set of options, both types of cards are designed to meet the specific needs of the owner.
Regarding the credit card, everything is quite clear. This is something like a consumer loan, issued in non-cash form. Customers apply for them to make purchases or pay the cost for services received. What “debit card” means is not clear to everyone. The question is relevant for those, who haven’t yet used the services of credit organizations and don’t have a plastic card at their disposal.
What a debit card means
The name comes from the term “debit”. In the case of plastic cards, the exact definition of this term is not quite right. In simple words, it can be explained as the absence of obligations to the bank.
When receiving any credit card client simultaneously assume a number of obligations, the main of which is the timely repayment of debt when using the credit limit. That is why credit card holders are called borrowers.
Debit cards without a credit limit
In case of debit cards the bank doesn’t provide a credit limit, i.e. it doesn’t put any borrowed funds on the balance. Holders of such cards are not called the borrower, since they do not take credit from the bank and do not sign a credit agreement. The more appropriate term here is “holder.
With debit cards, clients do not assume any obligations. The card is issued with a zero balance, so only the holder’s own funds can be used. After registration, he can replenish the balance by any available method. Then you can pay with the card in stores, make transfers in your personal account, buy goods and pay online, receive transfers from third parties.
The bank provides reliable and secure transactions with a guarantee of safety of client’s funds. Two people living in different parts of the country can transfer money to each other in a few seconds, provided they have cards of the same bank.
Banks do not issue “simple” debit cards with no additional services and options. No one will be interested in such cards, as there are always offers with bonus and savings programs, Cashback system, the ability to select an individual design.
In addition to spending their own money, holders of debit cards can also earn, using the services of banks. Debit cards are automatically or at client’s request connected to the federal program. The essence of this program is that the bank returns a certain percentage of funds spent by the client. The refund is made in the form of bonus points, which are then used to pay for services or goods.
How a debit card is issued
The bank does not risk its funds, so a debit card is much easier to obtain than a credit card. It’s enough to apply through the official website of the credit institution, then come to the office, show your passport and get a card.
When the bank issues the card does not check the credit history and exhibits no requirements for length of service. All that is required from the client is to use the card and receive bonus points for it. The most popular cards do not charge a fee for issuance. Annual maintenance fee in size depends on the number of services connected and the level of the card. The annual maintenance fee for “gold” and premium cards is always higher.
For convenience, one user may have one debit and one credit card, and it is desirable that the cards are of the same bank. At the same time, nothing prohibits one client from opening several debit cards at once in one bank, each of which will be linked to one bank account.
Why it is profitable for banks to issue debit cards
The bank can make several times more profit from one credit card than from debit one. Credit cards charge an annual interest rate, a cash withdrawal fee, and penalties for improper fulfillment of obligations. This all adds up to a credit institution’s profit.
Debit cards have none of this. The annual interest rate cannot be charged due to the lack of credit limit, and no penalties apply, since the client does not undertake any obligations.
Banks do not refuse to issue debit cards almost never. The profit of the credit institution here is made up of the annual service fee, a package of connected paid services, and possible commissions for certain operations.