You may have a debit card in your wallet, but have you ever stopped to think about how it works?

Debit cards blend the basic functions of an ATM card and a credit card to help consumers quickly access cash from their bank accounts. You can use a debit card for online purchases, at the cash register or even in a mobile wallet app to pay instead of writing a check.

Debit cards are issued by your bank and work as a combination ATM card and credit card. However, unlike a credit card, a debit card links directly to your bank account, using the money you have on deposit to pay for your purchase or make your ATM withdrawal digitally.

Debit cards partner with major credit card brands, such as VISA, Mastercard and RuPay, to allow you to use your debit card for payment anywhere those branded cards are accepted.

When using your debit card for an in-person purchase, you’ll swipe, insert or use contactless pay at the card terminal just like a credit card. You’ll then enter your personal identification number (PIN) into the machine, although some merchants allow you to use your debit card without a PIN. Your PIN is a security measure that verifies your identity.

Once your bank verifies you have the money to make the purchase, your transaction is approved. If you look at your bank statement, you might see that your purchase is pending, which means your bank hasn’t yet transferred the money to the merchant, even though they’ve debited your account. When the bank sends the money to the merchant, your transaction will appear approved.

When you use your debit card to pay for a purchase or get money from an ATM, you can complete the transaction because you already have the money necessary in your linked account.

Depending on your bank, you may be allowed to overdraft your account by a certain number of rupees if you have the additional funds available in a backup account, like a savings account. But, as a rule, to spend money using your debit card, the money you need must be in your account.

There are four main types of debit cards. The key difference between the types is generally the entity issuing the card.

Visa belongs to an American multinational financial services corporation. It is universally used and accepted. It is spread over 15,500 financial and government institutions of across 200 countries. The 24 hours of security monitoring is impressive. Visa debit card comes with Visa’s zero liability policy which protects the card holders from unofficial charges in case of the stolen or lost card. The continuous monitoring of the card helps them to detect any suspicious activities. It is easy to use, globally accepted and can make online transactions smooth. It is popularly used and available in India.

The characteristics of Visa debit card and Visa Electron debit cards are almost the same. The purchases are more simple and faster with a Visa Electron Debit Card. You cannot overdraft in case of funds shortage, which makes this card ideal for students or people with limited budgets. Due to its minimum expenditure, there’s a control over the money you spend, that makes the demand for this card high. 

RuPay is an Indian multinational financial services and payment service system launched in the year 2012 by the National Payment Corporation of India. Reserve Bank of India initiated RuPay with a vision of establishing a national, international and open system of payment. RuPay emphasizes “rupee” and “payment” launched by our country for card payments.   

It is a widely accepted card at ATMs, point of sale devices and online transactions. The security system is amazing, as it has an embedded microchip that provides additional security against fake cards and also protection against anti-phishing. 

MasterCard is an American multinational financial services corporation. It is accepted worldwide at over 480 destinations. MasterCard debit cards makes transactions easy at restaurants, shopping malls, online purchases and even monthly bills. The security system is appreciable with zero liability protections and provides ID theft resolution. The 24/7 assistance also monitors issues related to identity theft. It is a famously used debit card in India. 

Maestro debit cards is a global service provider with a great security system. It has around 1.5 cr point of sale outlets which makes it a popular debit card to use. It is fast, flexible, easy to use and has low transaction fees. Charges are applicable after every eight uses of ATM transactions out of which five should be from the same bank. It is available at most of the highly reputed banks except some like theICICI Bank in India. 

Contactless debit cards are super easy to access, transactions are done smoothly by just tapping the card on the point-of-sale devices and time-saving. Most of the payments done in Indian markets are less than INR 2,000, which makes it more convenient to use. Up to INR 2,000 is done without a pin by just waving the card. 

Financial institutions often issue debit cards automatically when you open a bank account, but you may need to request one. After receiving the card, you’ll activate it according to the instructions that come along with the card.

During the activation process, you’ll set your PIN. You’ll use your PIN for point-of-sale purchases, anytime you request cash back during a purchase and when withdrawing money from an ATM.

If you don’t have a bank account, you can still get a prepaid debit card through several banks like HDFC, SBI, Yes Bank, ICICI and Axis Bank. Also, major credit card companies like VISA, Mastercard and Rupay provide prepaid debit cards. 

If you choose to use a prepaid debit card, though, be aware that some charge monthly fees that can cut into your deposits.

It’s important to note that each bank sets minimum age limits for debit card eligibility. However, depending on the bank and account type, there are options to have a debit card issued to those as young as 7. These accounts are commonly labeled as teen checking accounts and require a parent or guardian as a joint account holder.

Once someone turns 10, they’re legally eligible to open a bank account in their name without a joint account holder.

Debit cards won’t typically have fees for everyday use, but there are fees in some cases:

Debit cards differ from credit cards in a few ways.

Credit Cards grant you an available credit line to make purchases. You can pay back the amount of your credit line that you use over time in monthly payments. The credit card company will charge you interest on your balance in exchange for taking on the risk of your purchases.

A debit card isn’t a credit line. Instead, it uses the money you have on deposit in the bank to pay merchants for goods and services or issue you cash from an ATM.

Two types of cards have names that are similar enough to confuse some consumers:

Frequently, those without access to banking services use prepaid debit cards to receive funds and spend money. Some employers issue paychecks through prepaid debit cards. 

While both debit cards and ATM cards allow you to access funds in your checking account, you can’t use an ATM card to make purchases.

ATM card use is strictly limited to transactions at an ATM.

First, don’t panic. Cards get lost and stolen every day. Contact your bank as soon as possible and let them know what’s happened to your card. Some banks even allow you to report this online through their online banking portal, while others require that you call.

Sometimes the bank will freeze your card, just in case you find it. Other times, the bank will immediately deactivate that debit card and send you a new debit card.

If your card is lost or stolen, it’s essential to report it promptly to reduce your liability for fraudulent charges. If you report your card lost or stolen within seven days, depending on the banks’ policies, you’ll only be liable for a maximum of INR 200 in unauthorized charges (and some banks waive that fee as a courtesy). 

Debit Card Advantages and Disadvantages

Debit cards are, without a doubt, powerful financial tools but aren’t without their drawbacks. It’s important to understand the pros and cons of these cards so you can develop smart financial habits and use them wisely.

Debit cards give you the flexibility of paying with a card instead of writing a check, both online and in person. It’s important to match the cards in your wallet with your spending habits, so take some time to compare your various spending options like credit cards, debit cards and prepaid cards. A combination of the three can help you gain the flexibility you crave with the seamless access to cash your daily activities require.

E. Napoletano is a former registered financial advisor and award-winning author and journalist.

Data/Automation Editor for Forbes Advisor. Mitch has more than a decade of experience as personal finance editor, writer and content strategist. Before joining Forbes Advisor, Mitch worked for several sites, including Bankrate, Investopedia, Interest, PrimeRates and FlexJobs.