Back to learn

What Is An ATM And How Do They Work?

3 min read

what is an atm and how do they work

Written By

Nick Saraev
Nick Saraev

In 2021, Canada boasted an impressive 212.44 Automated Teller Machines (ATMs) per 100,000 adults, significantly surpassing the global average of just 39.49, according to World Bank Data. This statistic highlights ATMs' pivotal role in our daily lives, as indispensable tools for managing personal finances.

Whether you need to withdraw cash, check your bank account balance, or perform other crucial ATM transactions, these machines offer unparalleled convenience and accessibility. The Automated Teller Machine, or ATM, has revolutionized how we access our savings accounts and conduct financial transactions. Automated Teller Machine ATM is now a priority in your personal finance glossary.

With the simple debit card swipe, users can effortlessly dispense cash, a testament to the ATM's role as a fundamental element of modern banking. Furthermore, understanding the nuances of ATM machine usage, including the potential benefits and pitfalls of withdrawing cash from credit cards, is essential for financial literacy.

As we delve deeper into the mechanics, fees, and safety measures associated with ATMs, remember that these devices are more than just cash dispensers; they're gateways to effective financial management.

Continue reading to uncover the full spectrum of ATM capabilities and learn how to maximize their benefits daily.

What is an ATM – Automated Teller Machine

An Automated Teller Machine (ATM) is a specialized computer that makes banking services, like withdrawing money, checking savings account balances, and depositing cash, available to customers outside the traditional bank branch environment. These standalone devices serve as electronic extensions of the human bank teller, enabling individuals to manage their finances autonomously and efficiently.

Let’s put this into an example you can relate to: Picture a late evening when banks are closed, and you urgently need to deposit money into your high-interest savings account or cash for an unexpected expense. Instead of waiting for the bank to open the next day, you can head to a nearby ATM and complete your transaction within minutes. This convenience is a modern financial luxury stemming from the inventive strides made in banking technology.

Evolution and Historical Insights of ATM

The Automated Teller Machine, commonly known as an ATM, has become a cornerstone of modern banking, allowing individuals to manage their savings accounts, withdraw money, and deposit cash without needing a human bank teller. This machine provides the convenience of banking transactions outside conventional hours, making it an indispensable tool in our daily lives.

From Concept to Reality: The Birth of the ATM

The journey of the ATM began not in the swinging sixties but in 1939, with a Turkish inventor named Luther Simjian. Simjian's creation, the 'Bankmatic machine', was an early prototype of today's ATMs.

Despite its innovative design, the device failed to gain popularity due to its primary users being unsavoury characters, leading to its swift removal. Nevertheless, this did not halt the march of progress.

The ATM Revolution Begins

The real breakthrough came in 1967, courtesy of John Shepherd-Barron, who devised the first true Automated Teller Machine after a moment of inspiration. Installed in a Barclays Bank branch in Enfield, London, this machine changed banking forever.

Shepherd-Barron's ATM was a response to the inconvenience of traditional banking hours, embodying the desire for 24/7 access to cash. This desire has since become a reality, as we now have many ATMs worldwide connected via the internet or phone line, enabling seamless financial transactions.

Innovations and Improvements

The first ATM relied on single-use, radioactive tokens for customer identification, a far cry from today's encrypted ATM cards. Shepherd-Barron's initial model could only dispense cash, not accept deposits or provide account balances.

However, it laid the foundation for the multifunctional machines we use today, which not only allow us to deposit money but also facilitate tasks like transferring money from a credit card or into a savings account.

The Evolution of Security and Functionality

Shepherd-Barron's prototype also introduced the Personal Identification Number (PIN), enhancing security—a feature that has remained central to ATM transactions. Though initially proposing a six-digit PIN, a four-digit code became the standard, simplifying the process for users globally.

Over time, ATMs have evolved significantly, now offering a wide range of services and boasting secure connections to financial institutions via the internet or phone lines, ensuring the safety and integrity of each transaction.

Types and Varieties of Automated Teller Machines

ATMs have become a ubiquitous part of our financial landscape, offering unparalleled convenience and flexibility in managing our finances. Whether you're checking your current account balance, withdrawing cash for a night out, or setting off on international travel, ATMs are your finance kiosk.

Let's dive into the different types that populate the ATM marketplace.

Cash Dispensers vs. Full-Service Units

When approaching an ATM, it's essential to understand what you're dealing with: is it a mere cash machine or a full-service unit? Cash dispensers are the simplest form, primarily designed for quick cash withdrawals from your current account. They're straightforward, focusing on getting you your money fast and efficiently, typically with set withdrawal limits to keep things moving smoothly.

On the other hand, full-service units are the Swiss Army knives of the ATM world. Beyond just dispensing cash, these machines allow you to perform a variety of financial transactions. From depositing checks and cash to transferring funds between accounts, these ATMs act as your on-the-go banking assistant.

Equipped with an advanced ATM's card reader, the full-service ATMs securely access your financial information, offering a broader range of services than their cash-dispensing counterparts.

On-site vs. Off-site Locations

The location of an ATM can significantly affect your banking experience. On-site ATMs are located within or directly outside a bank or financial institution. These machines are typically part of the bank's ATM network, offering lower customer fees and higher withdrawal limits. They provide a secure environment to perform your financial transactions, from checking your balance to managing your savings.

Conversely, off-site ATMs are found in shopping centers, airports, and even convenience stores. While they offer the lure of easy access and extended service hours, it's crucial to be mindful when using them. They may not be part of your bank's ATM network, potentially leading to higher transaction fees.

However, off-site ATMs are indispensable for urgent cash needs or travelling abroad. Understanding the distinction between on-site and off-site ATMs can save money and hassle for those planning to use their debit or credit cards for international travel.

Moreover, off-site ATMs provide a glimpse into the future of banking with features like shopping with virtual money or using a virtual credit card. These services extend traditional ATMs' functionality into digital finance, offering a bridge between physical cash and the increasing reliance on digital transactions.

What Services Does an ATM Offer?

ATMs offer direct interaction to manage your finances effectively. Let's explore the multitude of services that ATMs provide, ensuring you make the most of these financial tools.

Balance Inquiries and Bank Account Information

One of the fundamental services provided by most ATMs is account information inquiries. Whether you're looking to check the balance of your chequing or savings accounts or review recent transactions, ATMs offer a user-friendly interface.

Owned by your financial institution, these machines ensure secure access to your financial data, allowing you to keep abreast of your account status and make informed decisions for your plans for spending and saving.

Funds Transfers Between Accounts

The capability to transfer money between accounts is a key feature of ATMs within your bank's network. You can easily move funds from your chequing to savings accounts, manage loan payments, or ensure money is where you need it when you need it. This feature underscores the role of ATMs in maintaining the fluidity of your financial landscape, making them more than mere cash dispensers.

Depositing Money

Depositing funds is another vital service offered by ATMs, especially those owned by or in partnership with your financial institution. Whether depositing cash or paper cheques, these machines process your transactions securely and credit your bank account promptly. The service extends the functionality of ATMs beyond simple cash withdrawals, facilitating comprehensive banking transactions without the need for a teller.

Bill Payments

Paying bills is streamlined through the use of your financial institution's ATMs. Connecting your bank card, equipped with an EMV chip, to the ATM allows you to perform financial transactions such as paying utility bills, credit card statements, or other registered payees directly linked to your chequing account. The bill payment feature is particularly beneficial for those looking to manage their monthly expenses efficiently and on time.

Withdraw Cash and Choosing Denominations

Withdrawal of cash remains the most commonly utilized service of ATMs. You can access cash from your chequing, savings, or credit accounts using your bank card and PIN. Modern ATMs enhance this experience by allowing you to choose bill denominations conveniently.

Moreover, certain ATMs, especially in areas frequented by travellers like airports and international hotels, may offer currency options, such as dispensing U.S. dollars, providing an added convenience layer.

Changing Your PIN

Security is paramount in financial transactions, so ATMs allow you to change your bank card's PIN. This feature, available on machines owned by your card issuer, ensures that you maintain direct control over your account's security, allowing you to update your PIN to protect your financial information.

ATMs have evolved from mere cash machines to sophisticated terminals where you can perform many banking activities, reflecting the changing landscape of personal finance.

Anatomy of an ATM

Automated Teller Machines, while varied in design, incorporate fundamental components that facilitate secure and efficient banking transactions. Below is an exploration of these critical elements, reordered for clarity:

1. Interactive Display

The central feature of most ATMs is the screen or display, which serves as the primary user interface. It provides visual prompts to guide users through various banking operations, from fund transfers to balance inquiries. The clarity and responsiveness of the screen are essential for a user-friendly experience, allowing clear communication of account information and transaction details.

2. Card Readers for Transactions

Integral to every ATM, card readers initiate the transaction process by scanning the physical card. They are designed to decipher information from the card's magnetic stripe or the more secure EMV chip. This step ensures that the ATM works in harmony with the vast majority of bank-issued cards, facilitating a direct interaction between the user's bank account and the machine.

3. Keypads for Secure Data Entry

Following card insertion, the keypad becomes the focal point for users to securely input their Personal Identification Number (PIN) and other transaction-related data. This component is crucial for maintaining user information's confidentiality and enabling the precise execution of various banking tasks.

4. Cash Dispenser for Executing Withdrawals

Located within the secure confines of the ATM, the cash dispenser is responsible for physically delivering cash. Whether withdrawing a fixed amount or various denominations, this mechanism ensures the correct sum is dispensed accurately and securely, directly correlating with the user's instructions.

5. Printer for Transaction Confirmation

When the transaction cycle is completed, the ATM's printer allows users to obtain a printed receipt. This printout provides a detailed transaction record, including the type, amount, and updated balance, serving as a physical confirmation and record of the activity conducted.

Executing Transactions at an ATM

ATMs revolutionize how we interact with our finances, bridging the digital convenience of online banking and the tangible reality of physical cash. These machines, prevalent in locations from gas stations to grocery stores, empower customers to perform essential banking tasks independently without directly interacting with bank staff.

Withdrawing Cash

  1. Card Insertion: Begin by inserting your bank card into the machine. Ensure you retrieve your card if the machine prompts you to do so.

  2. PIN Entry: Securely access your Personal Identification Number (PIN) to access your account.

  3. Selection of Amount: Choose the specific amount of cash you wish to withdraw from the options provided.

  4. Receiving Cash: Collect the cash dispensed by the ATM’s cash dispenser.

  5. Transaction Completion: Follow any final instructions on the ATM screen to complete your withdrawal, ensuring your transaction is recorded correctly.

Depositing Money

  1. Card Insertion: Insert your card into the ATM. Remember to take your card back when prompted.

  2. PIN Entry: Safely key in your PIN to access your account services.

  3. Deposit Option: Select the 'deposit' choice on the ATM display.

  4. Deposit Type: Specify whether you are depositing cash or a cheque.

  5. Insertion of Funds: Insert your money or check into the designated slot.

  6. Completion: Adhere to the on-screen directions to finalize your deposit. Note that while numerous ATMs accommodate cash deposits, this feature may vary across different ATM networks.

Transferring Money

  1. Card Insertion: Start by inserting your bank card into the ATM.

  2. PIN Entry: Input your PIN to proceed with account-related activities.

  3. Selection of Transfer: Choose the option to transfer money from the menu.

  4. Transfer Details: Select the accounts you wish to transfer funds between, such as from your chequing to your savings account.

  5. Amount Entry: Input the amount of money you wish to transfer.

  6. Authorization: Confirm the transfer details and authorize the transaction by following the ATM’s instructions.

By offering these services, ATMs within or outside your financial institution's network ensure that managing your finances is possible beyond conventional business hours, reinforcing the banking industry's commitment to customer convenience and autonomy.

Understanding ATM Fees

Navigating the landscape of ATM fees can be challenging, but understanding these costs is crucial for managing your finances effectively. Here's a breakdown of typical ATM charges and how they can impact your wallet.

Overview of Typical ATM Charges

  • Regular Account Fee: This is a monthly charge associated with your checking account, covering a set number of transactions, including ATM withdrawals. Exceeding this limit incurs additional fees.

  • Network Access Fee: Withdrawing from ATMs outside your bank’s network (out-of-network ATM) often results in this fee charged by your bank for accessing another network.

  • Convenience Fee: Using an ATM not owned by your bank can incur this surcharge from the ATM operator, which is especially higher at ATMs in locations like shopping malls or those operated by private companies. ATMs may also be subject to foreign transaction fees.

When using an ATM, the total cost can vary significantly based on the ownership and network of the ATM. For instance, using your bank's ATM inside a shopping mall might incur minimal to no fees, whereas utilizing an out-of-network or privately operated ATM can result in higher total transaction costs.

Strategies to Reduce or Avoid ATM Fees

  • Utilize Your Bank’s ATMs: Stick to ATMs owned by your bank or those within its network to avoid additional fees.

  • Understand Your Account Terms: Know the number of free transactions your account includes and plan accordingly to avoid surpassing this limit.

  • Seek Reimbursement Programs: Many banks offer fee reimbursements for using out-of-network ATMs, especially if there's no available ATM within the network.

  • Plan Cash Withdrawals: Minimize the frequency of ATM use by withdrawing larger amounts less frequently, within safe and practical limits.

By becoming more aware of how ATMs work and the associated fees, customers can take proactive steps to minimize expenses. This knowledge not only enables customers to save money but also encourages more efficient financial planning and management.

What Are ATM Withdrawal Limits and Deposit Limits

ATM withdrawal and deposit limits are essential safeguards in the banking industry, designed to protect both the financial institution and the customer. These limits can influence how you manage your daily finances and plan significant transactions.

How Limits are Determined and Their Impact

The bank or financial institution typically sets ATM withdrawal limits, which can vary based on the type of account, the customer's banking history, and other security considerations. Factors influencing these limits include account balance, fraud prevention strategies, and operational limitations like the physical amount of cash available in the machine.

Deposit limits, on the other hand, may be influenced by factors such as the account type, the method of deposit, and the customer's deposit history. These limits are designed to manage risks associated with large deposits, ensuring the security and legality of the transactions.

The impact of these limits is significant: they ensure customer security, limit potential losses and help manage the cash supply within ATMs. However, they can also affect how and when you access your funds, potentially requiring planning for large purchases or emergency expenses.

Managing and Adjusting Your Banking Limits

You can typically find information related to your deposit and withdrawal limits through your online banking portal by contacting customer service or reviewing your account details.

If you find that your current limits do not fit your financial needs, consider discussing this with your bank. Many banks allow temporary or permanent limit adjustments based on your banking history and needs.

Additionally, planning your cash needs ahead of time can help avoid inconvenience. Consider using alternative methods like direct transfers or cashier's checks for large transactions.

Debit Cards versus ATM Cards

While both debit cards and ATM cards provide convenient access to your funds, they serve different purposes and offer distinct features. Understanding the differences between these two types of cards can help you make more informed choices about managing your money.

  • Access: Debit cards allow you to withdraw cash from ATMs and also make purchases directly from your checking account. ATM cards, however, are typically limited to withdrawing cash and checking your account balance at ATMs.

  • Network: Debit cards are often part of a major card network (such as Visa or MasterCard), enabling their use anywhere these cards are accepted. ATM cards may be restricted to specific ATM networks or banks.

  • Overdraft Protection: Debit cards linked to your checking account might offer overdraft protection associated with overdraft fees, which can be a safety net in emergencies. ATM cards generally do not provide this feature.

  • Security Features: Both card types come with security measures, but debit cards often have additional protections due to their broader usage, including fraud monitoring and zero liability policies.

  • Fees and Charges: There may be different fee structures associated with each card. Debit card transactions might incur different fees than ATM card transactions, especially when used for purchases or at out-of-network ATMs.

Rounding Up

ATMs bring convenience, providing round-the-clock access to our finances and facilitating various transactions. This freedom allows us to manage our money effectively, adapting to our dynamic lifestyles.

Yet, with convenience comes the duty of secure usage. Be vigilant at ATMs, shield your PIN, and conduct transactions in safe, well-lit locations. Regularly check your account for any unusual activity and report discrepancies immediately. By staying cautious, you can fully enjoy the benefits of ATMs while keeping your finances safe.

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!

Nick Saraev

Nick is a freelance writer and entrepreneur with a particular interest in business finance. He's been featured in publications like Popular Mechanics and Apple News



AboutAffiliatesCareersCommunity DiscountsCultureEnterpriseLearnNewcomersTravelStatusStudent & Graduate Discounts


The KOHO Mastercard® Prepaid card is issued by KOHO Financial Inc. pursuant to license by Mastercard International Incorporated. Mastercard and the circles design are registered trademarks of Mastercard International Incorporated.

By using this website, you accept our Terms and Conditions. Follow these links for more information on our Privacy Policy and Accessibility Policy. © 2024 KOHO Financial Inc.