Learn how bank cards work, what types there are, and available alternatives.
Definition and Example of a Bank Card
Banks are payment cards that banks issue to customers. This type of card can include debit, ATM, and credit cards.
Alternate names: Debit card, ATM card
A good example of a bank card is a debit card your bank issues when you open a checking account. When you use your debit card to make a payment, the bank deducts the transaction amount from your linked account.
How a Bank Card Works
Most bank cards are printed with a unique card number, an expiration date, the cardholder’s name, an EMV chip, a CVV or CVC code, and magnetic and signature strips on the backside of the card. The CVV or CVC is a three or four-digit verification code printed on the card. The EMV (Europay, Mastercard, Visa) chip is a secure computer chip on the front of the card to prevent fraud. Not all bank cards use EMV technology with their chip cards, but most do. EMV cards account for the majority of card payments around the world. To complete a transaction with a bank card, insert the side of the bank card with an EMV chip into the payment terminal, or for cards without a chip, you’ll swipe the magnetic strip. For a debit transaction, most point-of-sale machines will ask you to enter a PIN or provide your signature to verify your identity. A debit card transaction usually has an option to receive cash back. Cash back allows you to make a cash withdrawal on top of your purchase. The money you withdraw is deducted from the balance of the account the card is linked to. For a credit transaction, you may have to sign a receipt to verify your identity. The money is held within your account and released within a couple of days. You can’t get cash back when using a credit card to make a purchase. If your debit card is lost or stolen, Regulation E and the Electronic Funds Transfer Act (EFTA) protects your account from fraud depending on when you report it. If you report the card lost or stolen before it’s used, EFTA states you are not responsible for unauthorized transactions. However, if you report it after it has been used fraudulently, your level of liability varies:
Before any fraud occurs: $0Within two days of a fraudulent transaction: Your maximum loss is $50. More than two days after the fraud but less than 60 days after you receive your statement: Your maximum loss is $500. More than 60 days after the fraud: No cap on your liability.
Types of Bank Cards
Debit Card
Whenever you open a checking account, the bank will issue you a debit card linked to the account. First, you’ll have to create a secure PIN associated with the account. When you use the card to pay for goods and services, you’ll be asked to enter your secure PIN code, then money will be deducted automatically from the linked account.
ATM Card
ATM cards are linked to a checking or savings account and can only be used at the bank’s teller machine to make withdrawals, deposits, or check account balances. These transactions require a PIN. You can’t use an ATM card to make purchases.
Credit Card
While debit and ATM cards pay for transactions or provide money based on the cash you have in your linked account, credit cards allow you to pay for things using a revolving line of credit. If you pay off your purchases when your bill is due, you won’t pay any interest. If you don’t pay off your balance, you’ll pay an annual percentage rate (APR) on your balance—unless you have a zero-interest offer from the issuer.
Alternatives to a Bank Card
Another option is a prepaid card. A prepaid card is loaded with funds in advance. However, you can only spend up to the amount placed on the card. Most prepaid cards are reloadable and allow you to pay bills and other types of transactions. Another alternative to bank cards is using cash and checks to pay for expenses. Using only cash and checks can be an effective way to know how much you’re spending each week. The envelope budgeting system is based on cash-only purchasing.
