
What is a debit card? If you're new to the world of finance, you're likely still finding your footing when it comes to financial topics, available products, and how to use them. To learn more about what a debit card is and what having one entails, stick around as we unpack all there is to know below.
Rounding it up
You receive a debit card when you open a bank account, in most cases
Debit cards are linked to your chequing account, meaning you only spend your own money when you use them (unlike with credit cards)
They are a widely accepted and secure way to spend your money
Some debit cards provide benefits like fraud protection and benefits programs
There is no legal minimum age requirement to have a debit card, but minors will need the help of an adult to get one
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 in that 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 you will have to pay back in future, whereas 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 from 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.
When did debit cards come out?
Believe it or not, debit cards came out in the 1940s in the United States, but it wasn't until the 50s that a physical plastic card became more prominent, fast forward to the 1970s when the American Bankers Association introduced the magnetic stripe, which revolutionized the plastic card movement.
But, like all forms of technology, the magnet stripe did come with several security challenges, specifically around cloning cards. This challenge led to the development of microchip technology in 1975 by Roland Moreno. With the implementation of microchip technology, developments in debit cards skyrocketed in the 2007s when prepaid debit cards were developed.
And, if you currently have a debit card, you'll know that since then, developments in the financial tech sector have continued to grow each year--from contactless payment options to mobile banking and more. Gone are the days when everyone had to carry cash, making it easier to make purchases in person and online, wherever you were in the world!
Is it safe to use debit cards for online purchases?
If you've never used a debit card prior, you may be wondering whether it's safe to use debit cards online. Generally speaking, you can use a debit card online and have peace of mind that your electronic purchases are protected. This is because numerous security features have been developed and implemented to keep you safe, including the following:
EMV chip technology
Virtually all debit cards have EMV chips installed. These chips are responsible for generating a random code for each transaction, which makes it difficult for fraudsters to steal an account holder's information or clone their debit card.
Fraud protection
Most debit cards have fraud protection measures in place each time you make online purchases and those in person. This includes notifications for suspicious debit card purchases and withdrawals from your checking account, absolving you from what is known as "consumer's liability," which means you won't be liable for any unauthorized transactions.
Personal identification number (PIN)
A personal identification number, or PIN, is required for all transactions or when you withdraw cash from automated teller machines (ATM).
Account monitoring
You can immediately check your checking account following each debit card transaction so you can quickly detect unauthorized purchases and get help for suspicious activity.
Secured digital transactions
Debit cards use encryption methods to protect sensitive data during online transactions. In addition, your bank or credit union may provide extra safety precautions for transactions made online, such as code verifications that are sent to your phone each time you make a purchase.
How to keep your personal identification number (PIN) safe
Your personal identification number (PIN) is one of the most important security codes you can have when it comes to protecting the funds you store in your checking account, which is why it's important that you do everything possible to keep it safe. Here's what you need to do:
Avoid putting a copy of your PIN in your wallet: If it's stolen or lost, along with your debit card, you've basically given free access to your funds to whoever may come across it.
Avoid writing your PIN directly on your debit card: This one's a given. In no scenario is it a good idea to write your PIN on your debit card. Again, this is like giving away free money if your card is misplaced.
Cover your PIN: When making a transaction, cover your PIN with your hand as you're typing it into the payment terminal to prevent prying eyes from catching a glimpse.
Don't use a payment terminal that looks suspicious: Lastly, if the terminal offered to you looks suspicious or like it's been tampered with, stay clear. It could have a card reader on it that steals your debit card information as you use it.
Can you still withdraw cash if you do not have enough money in your account?
So, what happens if you don't have enough money in your account to withdraw cash or make a purchase using your debit card? Most banks have what is known as an insufficient funds fee. These fees are interest charges applied to your checking account when you try to use your debit card at a store, online, or withdraw cash from an automated teller machine (ATM), even if you have no funds present, which can happen when you don't budget your plans for spending and saving throughout the month.
To avoid these fees and continue using your bank card when you have insufficient funds, many banks offer what is known as overdraft protection coverage. The purpose of overdraft protection coverage is that it prevents you from paying an insufficient funds fee while allowing you to use your debit card for purchases without having the funds in your checking account. So, while your payment won't be denied, you'll still likely pay an overdraft fee.
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, helping them gain a sense of independence while learning how to manage their money responsibly, which will help them in the future when they have access to more funds. 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.
Ultimately, with the right guidance, teaching your children financial literacy and how to spend and monitor the money they earn will serve to help them in the long run.
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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 it back 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.
So, is KOHO a debit or credit card? We're a bit both! 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.
What is the difference between a debit card and a credit card?
Now that you know a bit more about what a debit card is, it's important that we talk about credit cards and how they differ from bank cards, as you'll likely have both at some point in your financial journey.
A debit card, as we said, is linked to your checking account, which allows you to deposit and withdraw cash from your financial institution. The balance in your checking account is money you already have. It's yours. You've earned it and chosen to store it in an account you have at your financial institution, whether it be a bank or credit union. Each time you use your debit card to make a purchase, your balance decreases, and the only fees you have to pay are taxes unless, of course, you've used more than the balance remaining, in which case, you'll be charged an overdraft fee.
In contrast, a credit card is a type of revolving credit loan you have with your credit card company. Credit card users apply for credit cards with a lender. Upon approval, they get a cash advance, allowing them to borrow money on their credit card each month up to their card limit. Unlike a debit card transaction, using a credit card comes with interest charges, as the money you're using isn't money from your checking account but rather the money your credit card company has allowed you to borrow.
Borrowing money and paying it back to a credit card company is what helps you build credit over time and establish a credit history by making payments on your credit card bill each billing cycle. By building credit with a credit card, you'll be able to borrow money through various loans in the future, access lower interest rates, and more.
Now, you're probably thinking, "Does a visa debit build credit?" Unfortunately, no. Even though your bank debit cards could be partnered with Visa or Mastercard, your debit card transaction still uses money from your checking account, which is money you already have. In contrast, a credit card transaction is borrowing money that must be repaid, which is the art of building credit.
So, when should you use your debit card versus a credit card? More info below:
When to use a debit card
You have enough money in your checking account to make a purchase.
You need to withdraw cash from an ATM and don't want to pay a fee for your cash advance.
You want to pay cash for an item but don't have any on you at the moment.
When to use a credit card
You need to pay for a larger purchase and would rather split your payments into ones that are more manageable.
Your credit card has appealing cash-back savings options and other incentives throughout the month that can put money back into your pocket at the end of the calendar year.
Unexpected expenses come up, you don't want to dip into your savings account, and you don't have enough money in your checking account at the moment.
Unsure what your current credit score is? Get a free credit score check today! Haven't you started your credit journey or are you looking for ways to improve your credit score? Build your credit with KOHO by signing up for a virtual credit card to streamline your online purchases with ease!
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Do you need a bank account to have a debit card?
Yes, most debit cards require you to have a bank account with a financial institution in order to use a bank card. However, if you don't have a bank account and want to make an online purchase or one in an actual store without using cash, you can buy a prepaid debit card like the one from KOHO we mentioned above!
Can I get a refund on my debit card?
Yes, if you use your debit card to make an in-person or online purchase and decide at a later date that you want to return it, you can get a refund put back onto your debit card. Remember that merchants have their own rules when it comes to making returns. So, read the fine print on the back of your receipt and bring it with you when making your return just to be safe.
Once the return is made, the money should appear back in your checking account within 10 business days.
Can you use a debit card abroad?
Using a debit card abroad will depend on whether it's compatible with the networks used overseas, including ATMs, merchants, and other banks. If you have a Visa or Mastercard debit card, many banks internationally will accept them with no issues.
But, be aware that using your debit card while travelling does come with risks, such as foreign transaction fees, currency exchanges, and ATM card fees. If you do need to withdraw cash from an ATM, consider making a larger withdrawal rather than a smaller one to avoid racking up numerous foreign transaction fees.
Further, depending on which financial institution you bank with, there may be the option to switch your standard debit card to one that is tailored to those who travel abroad. Travelling debit cards offer numerous benefits, including:
Purchases overseas can be made for less money when there are no or little foreign transaction fees.
Having access to an extensive worldwide network of automated teller machines, eliminates the need to carry cash.
Competitive exchange rates.
Extra safety precautions designed for global usage, offering comfort when travelling.
Contactless payment options, and more!
Should I use a debit card or credit card for travelling?
Okay, so we've gone over whether you can use a debit card while travelling, but is that the best option? Which should you use? A debit card or credit card for international travel? The truth is, there's no harm in using both!
Credit cards and debit cards carry advanced protection measures. So, if you use your credit card or debit card overseas and somehow misplace it, or it's stolen, your card issuer will cover you and ensure any charge on your credit card that is suspicious is immediately investigated, which can come in handy when you least expect it.
And, because credit cards and debit cards are accepted worldwide, you shouldn't have any issues paying for items as you travel. Just keep in mind that with a credit card, it can be easy to overspend. Remember that currency exchanges exist, so be mindful when switching between your debit card and credit card.
Pros and cons of debit cards
Before we wrap things up, let's go over some of the pros and cons of debit cards as a refresher below:
Pros of using debit cards
1. Safer option than carrying cash
A lot of the time, using your debit card is safer than carrying around a wad of cash on you. You can even add your debit card to your mobile wallet if you want contactless payment options. Should your debit card get lost or stolen, most debit cards have a tap limit of $100 and a security code that only you should know, giving you a sort of safety blanket until you can contact your financial institution and report suspicious activity on your card.
2. Easy to apply
Unlike a credit card that may require you to have a certain credit score or employment income to be accepted, debit cards are incredibly easy to get. All you need to do is open a checking account with a financial institution.
3. Does not incur debt
Because the money in your checking account is your own, when you use a debit card, you won't incur any debt, which is a great way to start managing and using your money responsibly before you enter the world of credit cards once you hit 18 years old.
Cons of using debit cards
1. Not as many perks as credit cards
Although there are numerous benefits to using a debit card, the fact of the matter is that it's not going to offer you as many perks as a credit card company will. For some, that's totally fine. For others who want to earn cash back and other incentives, a credit card may be worthwhile. But remember, there's nothing wrong with having a debit card and a credit card at the same time.
2. Limit on how you spend money
Because a debit card is linked to your personal checking account, there's obviously going to be a cap on how much you can spend at a time, which could limit you if you're trying to make more expensive purchases.
3. Does not build credit
Unlike a debit card, you can’t build credit with a debit card. While that's okay when you're first starting to manage your money, as you get older, building credit will help you take out loans for renovations, vacations, school tuition, and other big expenses for a lower rate.
4. May be charged service fees
Depending on how you use your debit card, there is a chance that you will incur fees. Remember banks charge fees for foreign transactions, insufficient funds, ATM fees, and using your overdraft in your checking account. Remember, having a checking account and debit card is still a responsibility, and you'll need to learn how to manage it correctly to avoid paying to use your hard-earned money.
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Do merchants put a hold on the money in my checking account?
Yes, merchants are able to put a hold on the money you have in your checking account if you are using your debit card to make a purchase. This is common for merchants who want to avoid losses or chargebacks from customers and is a precaution you don't really need to worry about.
For example, if you go on a vacation and book a hotel room, the hotel likely has a hold on a specific amount of money in your checking account as a way of holding your accommodations until you arrive and pay your bill.
What is a debit Mastercard?
So, what is a debit Mastercard? A debit Mastercard is a card issued by a bank or credit union. Similar to a standard debit card, a debit Visa or Mastercard, users are able to access funds stored in their chequing accounts. More notably, you can use this debit card online, which standard cards don't allow.
Ultimately, using a debt Visa or Mastercard offers you the convenience of withdrawing cash from an ATM, tapping and paying for everyday purchases, and online shopping abilities. These types of cards are also widely accepted worldwide. So, whether you're travelling the world or running errands for the day, you can rely on your debit Mastercard and have peace of mind knowing there are security measures in place to ensure your personal information is protected.
Tips to manage the money in your checking account
Managing your money can be difficult when it's your first card...we've all been there. To make using your debit card easier and stay on top of your spending habits, take note of these tips to keep you on track:
Use your online banking app religiously: Make sure to download your banking app onto your phone and check your balance a couple of times a week. Don't avoid it. It's not as scary as you think it is. Keeping an eye on how your money is doing will help you spend mindfully and rethink purchases that may not be in your budget for the month.
Turn on transaction notifications: Most debit cards have the option to turn on transaction notifications. Every time you make a purchase or a preauthorized payment is withdrawn from your account. You'll get a notification directly on your phone outlining where and how much money was withdrawn. This will help you stay on top of unauthorized transactions that may come from your account unknowingly.
Use a spending tracker: Depending on who your financial institution is, you may also have the option to use a spending tracker, which essentially categorizes each of your payments. At the end of the month, you'll get either a list or graph that shows you which spending categories you spend the most money in.
Lock your card: If you suspect unauthorized transactions are being made from your account, you can immediately lock your card directly on your online banking app, preventing further purchases until all transactions are investigated thoroughly.
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.
And, if you're looking for a way to save money while getting a return on your deposits, consider opening a high-interest spending account with KOHO! With our high-interest spending account, you can get up to a 4% return on your funds, which are calculated daily and paid out each month!
Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our KOHO Plans page for our most up-to-date account information!

About the author
Niki is a communications specialist with years of experience as a freelance and marketing agency content writer. With a knack for storytelling, Niki enjoys working with businesses from diverse industries to craft engaging content that resonates with target audiences worldwide.
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