What Is a Bank Card and How Does it Work?

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Updated on Thursday, July 30, 2020

A bank card is a type of payment card issued to you by your bank or financial institution, and it can be used to access the funds in your checking account, savings account or line of credit. Bank cards can include debit cards, ATM cards and credit cards. In other words, bank cards are a financial tool that make it possible for you to purchase everything from your morning coffee with a simple swipe to airline tickets online.

What is a bank card?

As the name suggests, bank card are payment cards issued by your bank or financial institution, giving you easy access to the funds you hold or to borrow funds from that particular financial institution. Bank cards can be used to make payments at stores or online, or to withdraw money from an ATM.

The most common types of bank cards are debit cards, ATM cards and credit cards.

  • Debit cards: One of the most common types of bank cards is a debit card. Debit cards are linked to your bank account (often a checking account), and give you access to funds that you have already deposited at your bank or financial institution. Debit cards are a convenient way to spend the money you already have, without having to carry around heaps of cash. You can also use debit cards at ATMs to withdraw cash.With debit cards, you need to be cautious about overdrafting, which happens when you make a purchase with your debit card without having the funds in your account to cover it. Some banks will simply not allow the transaction to go through, but others will allow the purchase to happen, while tacking on hefty overdraft fees that can add up over time.
  • ATM cards: These types of cards can only be used to withdraw cash at an ATM, and require you to enter your personal identification number (PIN) in order to do so. ATMs cards are issued by a financial institution (making them a type of bank card by definition), and you can use them to make cash withdrawals and transfers, and to obtain balance information.
  • Credit cards: Unlike ATM cards and debit cards, which are types of cash cards under the bank cards umbrella, credit cards give you access to a line of credit. When you use your credit card to make a purchase, you are borrowing money from the credit card issuer and are expected to pay that money back every month. If you don’t, you will often end up paying more through interest and other fees. Since credit cards are issued by your bank or credit union, they are considered a type of bank card.

How bank cards work

Bank cards give you either immediate electronic access to the funds in your deposit account, or they allow you to immediately borrow funds via a line of credit, enabling you to make purchases. When you make a purchase with your bank card, funds can be instantly deducted from your linked account (such is the case with debit cards and checking accounts), or you will be required to make a minimum monthly payment on your line of credit (like with credit cards).

Depending on the type of bank card you have, you might be prompted to either enter a PIN, insert your card’s EMV chip into the machine reader or select whether you want to make the purchase via debit or credit when you use it. These are all safety measures designed to minimize fraud and theft.

When you receive your bank card, you will likely notice a logo on the card associated with a payment network, such as Visa, Mastercard, American Express or Discover. Serving as a middleman, these companies take care of processing the payments you make with your bank card. Whether you have a debit card or credit card, you will have a payment network associated with your card.

Common features of a bank card

While the specific features of bank cards vary based on type, they typically share the following core characteristics:

  • EMV chips: Many bank cards now come equipped with a small computer chip, called an EMV chip. These chips are becoming increasingly popular, and are designed to help prevent fraud by creating a unique transaction code for each purchase. If your bank card has an EMV chip, the merchant will likely ask you to dip your card into the register as opposed to swiping it.
  • Rewards: Debit card and credit cards may offer incentives for you to use them as your mode of payment for purchases. Common rewards that can be obtained through using your bank card include cash back and airline miles. Your card’s payment network (such as Visa or Mastercard) can administer the benefits on behalf of the card issuer.

Are bank cards safe?

In general, bank cards are safe methods of payment. There are differences in safety among the different types of bank cards, though.

Credit cards are often considered the safest mode of payment under the bank card umbrella. By law, your maximum liability for credit card fraud is $50. Meanwhile, if your debit card gets stolen, the thief could drain your entire checking account and potentially even put you in the red, racking up overdraft fees. With debit card fraud, you can be fully liable for fraudulent activity and charges if you do not report your card as stolen within 60 days of receiving your statement.

ATM cards boast the same safety features as debit cards. You generally are liable for up to $50 if you report your card as stolen within two days, up to $500 if you report it within 60 days and the entire amount if you wait more than 60 days to report a stolen card.

While credit cards may reign supreme in terms of safety, no matter how you slice it, bank cards are a much safer and realistic way to make everyday purchases compared with carrying around a stash of cash.