Understanding the Pros and Cons of Debit Cards

  • Debit cards come with both benefits and drawbacks.
  • Debit card advantages include flexibility, security, and the ability to use them almost anywhere.
  • Debit cards can help some consumers manage money.
  • Debit card cons include a lack of features, such as cashback rewards and additional protections.

Debit cards are a widely used payment method, giving checking and other deposit account holders a convenient way to make daily purchases. Debit cardholders now even include some teens. 

So, what makes these financial tools so effective? Do they have any drawbacks? Knowing the debit card advantages and disadvantages can help any consumer decide if they’re the right addition to their wallet. For those who already have one, it may even help them use more of the benefits available. 

Pros of Debit Cards

Whether it’s a Mastercard, Visa®, or another brand of debit card, most offer the same benefits.

Widely Accepted

Because the cards are issued by major issuers and have the backing of banks, they are processed by most retailers that accept credit cards. They can also be used online to make purchases or to pay bills, such as utilities, phone services, or streaming providers.

Debit cards can be easily swiped at the counter, inserted to process via chip, or using the "tap" technology.

Debit cards can also be added as a payment method for a digital wallet like Apple Pay or Google Pay. They can be stored inside payment accounts for recurring monthly bill payments.

Manage Spending

Debit cards also help with spending goals, such as tracking how money is spent every month (or even each day). All debit card purchases are recorded as electronic transactions the card issuing company tracks through the account. By logging on to the bank’s website or app, it’s easy to get an overview of what purchases were made. Not only does this work well with some electronic budgeting apps and software services available today, but it can alert the cardholder to unauthorized purchases or pricing errors.

Can Be Replaced Easily

Unlike when cash is lost, debit cards aren’t gone forever. Their loss can be reported to the bank and replaced. Some banks don’t even charge for a card replacement.  

Offer Secure Payment

Shopping can be more secure when using a debit card. The card technology mirrors that of traditional credit cards and comes with features like chips, PINs, and other safety measures. It’s also safer to carry a debit card than cash.

Give Access to Cash

Not only do debit cards help consumers use their money to purchase things quickly and securely, but they also provide a flexible way to get cash.

Debit cards can be used at ATMs to withdraw money, and some retailers allow shoppers to withdraw additional cash back at the checkout counter when making a purchase. This saves time visiting a bank teller to get $20, $40, or even larger amounts of cash.

As long as you follow the bank's terms for requesting cash and use an in-network ATM, there should be minimal fees, if any, to get cash.

Cons of Debit Cards

Even with all the benefits debit cards offer, there are some drawbacks to consider.

Hold Funds

When making a debit card purchase, the purchase amount is immediately authorized, held, and sent for processing to your bank account. However, some purchase types, such as those for hotel stays or gasoline, pre-authorize purchases by holding amounts much larger than the purchase. These holds drop off after a few days or even a few hours, but they keep you from spending that amount while the charge settles.

For example, a hotel stay may hold $200 or more until the stay is over and paid for, then release the funds a few days later. So, a $500 hotel stay can cost $700 or more until those additional held funds are released back into the accountholder’s control. For someone who doesn’t have an additional $200 to spare, this can prove a problem. Gas stations can now pre-authorize up to $175 on a debit card each time gas is pumped,[1] making it initially very expensive if someone needs to fill up several times during a road trip.

Spending Limits

One big difference between a debit card and a credit card is how much a consumer can use them in one day. Most debit cards have daily spending limits which vary by account type and bank. These limits can be as low as $200. Upon reaching a spending limit, the cardholder can’t use the debit card again until the next day.

Credit cards, however, don’t have these lower limits. Depending on the credit account, an accountholder can spend their entire credit limit in one purchase. Those who want to use their debit card for large purchases or to shop at several places in one day may find it challenging.

Offer Few, If Any, Rewards

Generally, debit cards don't give rewards or cashback earnings for purchases. Those that do offer very low earning rates compared to credit cards. This means that using a debit card to buy $100 in fuel might cause the cardholder to miss out on a 5% cashback earning promotion from their credit card. While that $5 may not seem like much, the missed earnings can add up.

Is a Debit Card Right for You?

For example, consider how much a consumer may save when making grocery and gas purchases on a debit card instead of a credit card that doesn’t end up getting paid off.

With interest rates at 28% or even higher for some credit cards, debit cards present an opportunity for consumers who want to stay out of debt. Add in the lack of annual fees, security benefits, and financial management tools that come with debit card accounts, and it’s easy to see why so many prefer this payment method for their day-to-day purchases.

The Bottom Line on Debit Cards

Ultimately, many consumers can find a place for debit cards in their spending plan, even if they don’t use them for everything.

When making smaller daily purchases or when debt is a concern, these cards offer peace of mind and a secure way to pay. Otherwise, they aren’t a replacement for the larger purchasing power of credit cards.

Since they are a standard tool for most checking accounts, getting one is generally easy. If interested, contact your local bank to learn how debit cards work with a new or existing account and what new features or tools may be available for debit card holders.